Correlation Between BW OFFSHORE and Japan Tobacco

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

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

Diversification Opportunities for BW OFFSHORE and Japan Tobacco

-0.06

Correlation Coefficient

BW OFFSHORE  Japan Tobacco

Good diversification

The 3 months correlation between XY81 and Japan is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding BW OFFSHORE LTD and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco and BW 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 BW OFFSHORE LTD are associated (or correlated) with Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco has no effect on the direction of BW OFFSHORE i.e., BW OFFSHORE and Japan Tobacco go up and down completely randomly.

Pair Corralation between BW OFFSHORE and Japan Tobacco

Assuming the 90 days trading horizon BW OFFSHORE LTD is expected to generate 1.54 times more return on investment than Japan Tobacco. However, BW OFFSHORE is 1.54 times more volatile than Japan Tobacco. It trades about 0.03 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.04 per unit of risk. If you would invest  198.00  in BW OFFSHORE LTD on October 3, 2024 and sell it today you would earn a total of  48.00  from holding BW OFFSHORE LTD or generate 24.24% return on investment over 90 days.

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

BW OFFSHORE LTD  vs.  Japan Tobacco

BW OFFSHORE LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW OFFSHORE LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BW OFFSHORE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Japan Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BW OFFSHORE and Japan Tobacco

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

The idea behind BW OFFSHORE LTD and Japan Tobacco 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.