Correlation Between SBM Offshore and INGEVITY

Can any of the company-specific risk be diversified away by investing in both SBM Offshore and INGEVITY 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 INGEVITY 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 INGEVITY P 3875, you can compare the effects of market volatilities on SBM Offshore and INGEVITY 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 INGEVITY. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and INGEVITY.

Diversification Opportunities for SBM Offshore and INGEVITY

-0.18

Correlation Coefficient

SBM Offshore  INGEVITY

Good diversification

The 3 months correlation between SBM and INGEVITY is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and INGEVITY P 3875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INGEVITY P 3875 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 INGEVITY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INGEVITY P 3875 has no effect on the direction of SBM Offshore i.e., SBM Offshore and INGEVITY go up and down completely randomly.

Pair Corralation between SBM Offshore and INGEVITY

Assuming the 90 days horizon SBM Offshore NV is expected to generate 1.31 times more return on investment than INGEVITY. However, SBM Offshore is 1.31 times more volatile than INGEVITY P 3875. It trades about -0.05 of its potential returns per unit of risk. INGEVITY P 3875 is currently generating about -0.14 per unit of risk. If you would invest  1,836  in SBM Offshore NV on October 22, 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	88.52%
Values	Daily Returns

SBM Offshore NV  vs.  INGEVITY P 3875

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.

INGEVITY P 3875

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INGEVITY P 3875 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for INGEVITY P 3875 investors.

Pair Trading with SBM Offshore and INGEVITY

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

The idea behind SBM Offshore NV and INGEVITY P 3875 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.