Correlation Between SBM Offshore and Northern Trust

Can any of the company-specific risk be diversified away by investing in both SBM Offshore and Northern Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SBM Offshore and Northern Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SBM Offshore NV and Northern Trust High, you can compare the effects of market volatilities on SBM Offshore and Northern Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SBM Offshore with a short position of Northern Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and Northern Trust.

Diversification Opportunities for SBM Offshore and Northern Trust

0.14

Correlation Coefficient

SBM Offshore  Northern Trust

Average diversification

The 3 months correlation between SBM and Northern is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Northern Trust High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust High and SBM Offshore is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SBM Offshore NV are associated (or correlated) with Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust High has no effect on the direction of SBM Offshore i.e., SBM Offshore and Northern Trust go up and down completely randomly.

Pair Corralation between SBM Offshore and Northern Trust

Assuming the 90 days horizon SBM Offshore NV is expected to generate 17.99 times more return on investment than Northern Trust. However, SBM Offshore is 17.99 times more volatile than Northern Trust High. It trades about 0.03 of its potential returns per unit of risk. Northern Trust High is currently generating about 0.04 per unit of risk. If you would invest  1,576  in SBM Offshore NV on October 10, 2024 and sell it today you would earn a total of  167.00  from holding SBM Offshore NV or generate 10.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	72.82%
Values	Daily Returns

SBM Offshore NV  vs.  Northern Trust High

Pair Trading with SBM Offshore and Northern Trust

The main advantage of trading using opposite SBM Offshore and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore position performs unexpectedly, Northern Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Northern Trust will offset losses from the drop in Northern Trust's long position.

The idea behind SBM Offshore NV and Northern Trust High pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.