Correlation Between SBM Offshore and Union Electric

Can any of the company-specific risk be diversified away by investing in both SBM Offshore and Union Electric 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 Union Electric 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 Union Electric, you can compare the effects of market volatilities on SBM Offshore and Union Electric 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 Union Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and Union Electric.

Diversification Opportunities for SBM Offshore and Union Electric

-0.06

Correlation Coefficient

SBM Offshore  Union Electric

Good diversification

The 3 months correlation between SBM and Union is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Union Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Electric 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 Union Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Electric has no effect on the direction of SBM Offshore i.e., SBM Offshore and Union Electric go up and down completely randomly.

Pair Corralation between SBM Offshore and Union Electric

Assuming the 90 days horizon SBM Offshore NV is expected to generate 0.57 times more return on investment than Union Electric. However, SBM Offshore NV is 1.77 times less risky than Union Electric. It trades about -0.05 of its potential returns per unit of risk. Union Electric is currently generating about -0.04 per unit of risk. If you would invest  1,836  in SBM Offshore NV on October 26, 2024 and sell it today you would lose (93.00) from holding SBM Offshore NV or give up 5.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.92%
Values	Daily Returns

SBM Offshore NV  vs.  Union Electric

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM Offshore NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, SBM Offshore is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Union Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Electric has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with SBM Offshore and Union Electric

The main advantage of trading using opposite SBM Offshore and Union Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore position performs unexpectedly, Union Electric 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 Union Electric will offset losses from the drop in Union Electric's long position.

The idea behind SBM Offshore NV and Union Electric 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.

Check out your portfolio center.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.