Correlation Between Sembcorp Marine and BWX Technologies

Can any of the company-specific risk be diversified away by investing in both Sembcorp Marine and BWX Technologies 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 Sembcorp Marine and BWX Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sembcorp Marine and BWX Technologies, you can compare the effects of market volatilities on Sembcorp Marine and BWX Technologies 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 Sembcorp Marine with a short position of BWX Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sembcorp Marine and BWX Technologies.

Diversification Opportunities for Sembcorp Marine and BWX Technologies

-0.09

Correlation Coefficient

Sembcorp Marine  BWX Technologies

Good diversification

The 3 months correlation between Sembcorp and BWX is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Sembcorp Marine and BWX Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BWX Technologies and Sembcorp Marine 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 Sembcorp Marine are associated (or correlated) with BWX Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BWX Technologies has no effect on the direction of Sembcorp Marine i.e., Sembcorp Marine and BWX Technologies go up and down completely randomly.

Pair Corralation between Sembcorp Marine and BWX Technologies

Assuming the 90 days horizon Sembcorp Marine is expected to generate 2.29 times more return on investment than BWX Technologies. However, Sembcorp Marine is 2.29 times more volatile than BWX Technologies. It trades about 0.07 of its potential returns per unit of risk. BWX Technologies is currently generating about -0.06 per unit of risk. If you would invest  134.00  in Sembcorp Marine on December 28, 2024 and sell it today you would earn a total of  20.00  from holding Sembcorp Marine or generate 14.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Sembcorp Marine  vs.  BWX Technologies

Sembcorp Marine

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sembcorp Marine are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Sembcorp Marine reported solid returns over the last few months and may actually be approaching a breakup point.

BWX Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days BWX Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Sembcorp Marine and BWX Technologies

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

The idea behind Sembcorp Marine and BWX Technologies 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.