Correlation Between Subsea 7 and BW Energy

Can any of the company-specific risk be diversified away by investing in both Subsea 7 and BW Energy 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 Subsea 7 and BW Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Subsea 7 SA and BW Energy, you can compare the effects of market volatilities on Subsea 7 and BW Energy 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 Subsea 7 with a short position of BW Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subsea 7 and BW Energy.

Diversification Opportunities for Subsea 7 and BW Energy

-0.31

Correlation Coefficient

Subsea 7  BW Energy

Very good diversification

The 3 months correlation between Subsea and BWE is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Subsea 7 SA and BW Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Energy and Subsea 7 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 Subsea 7 SA are associated (or correlated) with BW Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Energy has no effect on the direction of Subsea 7 i.e., Subsea 7 and BW Energy go up and down completely randomly.

Pair Corralation between Subsea 7 and BW Energy

Assuming the 90 days trading horizon Subsea 7 SA is expected to under-perform the BW Energy. But the stock apears to be less risky and, when comparing its historical volatility, Subsea 7 SA is 1.3 times less risky than BW Energy. The stock trades about -0.05 of its potential returns per unit of risk. The BW Energy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,355  in BW Energy on December 29, 2024 and sell it today you would earn a total of  705.00  from holding BW Energy or generate 29.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Subsea 7 SA  vs.  BW Energy

Subsea 7 SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Subsea 7 SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Subsea 7 is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

BW Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BW Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, BW Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Subsea 7 and BW Energy

The main advantage of trading using opposite Subsea 7 and BW Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subsea 7 position performs unexpectedly, BW Energy 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 BW Energy will offset losses from the drop in BW Energy's long position.

The idea behind Subsea 7 SA and BW Energy 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.