Correlation Between Subsea 7 and BW Offshore

Can any of the company-specific risk be diversified away by investing in both Subsea 7 and BW Offshore 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 Offshore 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 Offshore, you can compare the effects of market volatilities on Subsea 7 and BW Offshore 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 Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subsea 7 and BW Offshore.

Diversification Opportunities for Subsea 7 and BW Offshore

0.42

Correlation Coefficient

Subsea 7  BW Offshore

Very weak diversification

The 3 months correlation between Subsea and BWO is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Subsea 7 SA and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore 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 Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of Subsea 7 i.e., Subsea 7 and BW Offshore go up and down completely randomly.

Pair Corralation between Subsea 7 and BW Offshore

Assuming the 90 days trading horizon Subsea 7 SA is expected to under-perform the BW Offshore. But the stock apears to be less risky and, when comparing its historical volatility, Subsea 7 SA is 1.05 times less risky than BW Offshore. The stock trades about -0.05 of its potential returns per unit of risk. The BW Offshore is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,840  in BW Offshore on December 29, 2024 and sell it today you would earn a total of  110.00  from holding BW Offshore or generate 3.87% return on investment over 90 days.

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

Subsea 7 SA  vs.  BW Offshore

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 Offshore

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, BW Offshore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Subsea 7 and BW Offshore

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

The idea behind Subsea 7 SA and BW Offshore 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 Commodity Directory module to find actively traded commodities issued by global exchanges.