Correlation Between SBM Offshore and Rolls Royce
Can any of the company-specific risk be diversified away by investing in both SBM Offshore and Rolls Royce 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 Rolls Royce 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 Rolls Royce Holdings PLC, you can compare the effects of market volatilities on SBM Offshore and Rolls Royce 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 Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and Rolls Royce.
Diversification Opportunities for SBM Offshore and Rolls Royce
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SBM and Rolls is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Rolls Royce Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of SBM Offshore i.e., SBM Offshore and Rolls Royce go up and down completely randomly.
Pair Corralation between SBM Offshore and Rolls Royce
Assuming the 90 days trading horizon SBM Offshore is expected to generate 3.72 times less return on investment than Rolls Royce. But when comparing it to its historical volatility, SBM Offshore NV is 1.25 times less risky than Rolls Royce. It trades about 0.05 of its potential returns per unit of risk. Rolls Royce Holdings PLC is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 15,360 in Rolls Royce Holdings PLC on January 12, 2025 and sell it today you would earn a total of 54,020 from holding Rolls Royce Holdings PLC or generate 351.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
SBM Offshore NV vs. Rolls Royce Holdings PLC
Performance |
| Timeline |
| SBM Offshore NV |
| Rolls Royce Holdings |
SBM Offshore and Rolls Royce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SBM Offshore and Rolls Royce
The main advantage of trading using opposite SBM Offshore and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore position performs unexpectedly, Rolls Royce 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 Rolls Royce will offset losses from the drop in Rolls Royce's long position.| SBM Offshore vs. Alaska Air Group | SBM Offshore vs. Bisichi Mining PLC | SBM Offshore vs. Amedeo Air Four | SBM Offshore vs. Endeavour Mining Corp |
| Rolls Royce vs. National Beverage Corp | Rolls Royce vs. Grieg Seafood | Rolls Royce vs. Dalata Hotel Group | Rolls Royce vs. Capital Metals PLC |
Check out your portfolio center.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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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