Correlation Between BW Energy and Subsea 7
Can any of the company-specific risk be diversified away by investing in both BW Energy and Subsea 7 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 Energy and Subsea 7 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW Energy and Subsea 7 SA, you can compare the effects of market volatilities on BW Energy and Subsea 7 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 Energy with a short position of Subsea 7. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Energy and Subsea 7.
Diversification Opportunities for BW Energy and Subsea 7
Modest diversification
The 3 months correlation between BWE and Subsea is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding BW Energy and Subsea 7 SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Subsea 7 SA and BW Energy 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 Energy are associated (or correlated) with Subsea 7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Subsea 7 SA has no effect on the direction of BW Energy i.e., BW Energy and Subsea 7 go up and down completely randomly.
Pair Corralation between BW Energy and Subsea 7
Assuming the 90 days trading horizon BW Energy is expected to under-perform the Subsea 7. In addition to that, BW Energy is 1.14 times more volatile than Subsea 7 SA. It trades about -0.03 of its total potential returns per unit of risk. Subsea 7 SA is currently generating about 0.15 per unit of volatility. If you would invest 16,870 in Subsea 7 SA on September 5, 2024 and sell it today you would earn a total of 980.00 from holding Subsea 7 SA or generate 5.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW Energy vs. Subsea 7 SA
Performance |
| Timeline |
| BW Energy |
| Subsea 7 SA |
BW Energy and Subsea 7 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW Energy and Subsea 7
The main advantage of trading using opposite BW Energy and Subsea 7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Energy position performs unexpectedly, Subsea 7 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 Subsea 7 will offset losses from the drop in Subsea 7's long position.The idea behind BW Energy and Subsea 7 SA 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.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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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