Correlation Between SBM Offshore and Waste Management

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

Diversification Opportunities for SBM Offshore and Waste Management

0.65

Correlation Coefficient

SBM Offshore  Waste Management

Poor diversification

The 3 months correlation between SBM and Waste is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of SBM Offshore i.e., SBM Offshore and Waste Management go up and down completely randomly.

Pair Corralation between SBM Offshore and Waste Management

Assuming the 90 days horizon SBM Offshore NV is expected to generate 4.06 times more return on investment than Waste Management. However, SBM Offshore is 4.06 times more volatile than Waste Management. It trades about 0.03 of its potential returns per unit of risk. Waste Management is currently generating about 0.07 per unit of risk. If you would invest  1,535  in SBM Offshore NV on October 26, 2024 and sell it today you would earn a total of  208.00  from holding SBM Offshore NV or generate 13.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	72.06%
Values	Daily Returns

SBM Offshore NV  vs.  Waste Management

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.

Waste Management

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Waste Management is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SBM Offshore and Waste Management

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

The idea behind SBM Offshore NV and Waste Management 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.