Correlation Between BW Offshore and Sparebank
Can any of the company-specific risk be diversified away by investing in both BW Offshore and Sparebank 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 Sparebank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW Offshore and Sparebank 1 SMN, you can compare the effects of market volatilities on BW Offshore and Sparebank 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 Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and Sparebank.
Diversification Opportunities for BW Offshore and Sparebank
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BWO and Sparebank is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Sparebank 1 SMN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SMN 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 are associated (or correlated) with Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebank 1 SMN has no effect on the direction of BW Offshore i.e., BW Offshore and Sparebank go up and down completely randomly.
Pair Corralation between BW Offshore and Sparebank
Assuming the 90 days trading horizon BW Offshore is expected to generate 2.76 times less return on investment than Sparebank. In addition to that, BW Offshore is 3.01 times more volatile than Sparebank 1 SMN. It trades about 0.01 of its total potential returns per unit of risk. Sparebank 1 SMN is currently generating about 0.11 per unit of volatility. If you would invest 15,700 in Sparebank 1 SMN on August 28, 2024 and sell it today you would earn a total of 936.00 from holding Sparebank 1 SMN or generate 5.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW Offshore vs. Sparebank 1 SMN
Performance |
| Timeline |
| BW Offshore |
| Sparebank 1 SMN |
BW Offshore and Sparebank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW Offshore and Sparebank
The main advantage of trading using opposite BW Offshore and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore position performs unexpectedly, Sparebank 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 Sparebank will offset losses from the drop in Sparebank's long position.The idea behind BW Offshore and Sparebank 1 SMN 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.| Sparebank vs. Sparebank 1 Nord Norge | Sparebank vs. Sparebanken Vest | Sparebank vs. Storebrand ASA | Sparebank vs. DnB ASA |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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