Correlation Between Babcock Wilcox and Steel Connect

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Can any of the company-specific risk be diversified away by investing in both Babcock Wilcox and Steel Connect 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 Babcock Wilcox and Steel Connect into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Babcock Wilcox Enterprises and Steel Connect, you can compare the effects of market volatilities on Babcock Wilcox and Steel Connect 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 Babcock Wilcox with a short position of Steel Connect. Check out your portfolio center. Please also check ongoing floating volatility patterns of Babcock Wilcox and Steel Connect.

Diversification Opportunities for Babcock Wilcox and Steel Connect

-0.69
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Babcock and Steel is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Steel Connect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Connect and Babcock Wilcox 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 Babcock Wilcox Enterprises are associated (or correlated) with Steel Connect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Connect has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Steel Connect go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Steel Connect

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to generate 2.07 times more return on investment than Steel Connect. However, Babcock Wilcox is 2.07 times more volatile than Steel Connect. It trades about 0.12 of its potential returns per unit of risk. Steel Connect is currently generating about -0.08 per unit of risk. If you would invest  132.00  in Babcock Wilcox Enterprises on August 24, 2024 and sell it today you would earn a total of  57.00  from holding Babcock Wilcox Enterprises or generate 43.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Babcock Wilcox Enterprises  vs.  Steel Connect

 Performance 
       Timeline  
Babcock Wilcox Enter 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Babcock Wilcox showed solid returns over the last few months and may actually be approaching a breakup point.
Steel Connect 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Steel Connect has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Babcock Wilcox and Steel Connect Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Babcock Wilcox and Steel Connect

The main advantage of trading using opposite Babcock Wilcox and Steel Connect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Babcock Wilcox position performs unexpectedly, Steel Connect 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 Steel Connect will offset losses from the drop in Steel Connect's long position.
The idea behind Babcock Wilcox Enterprises and Steel Connect 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.

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