Correlation Between BW Offshore and Sparebanken Ost
Can any of the company-specific risk be diversified away by investing in both BW Offshore and Sparebanken Ost 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 Sparebanken Ost into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW Offshore and Sparebanken Ost, you can compare the effects of market volatilities on BW Offshore and Sparebanken Ost 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 Sparebanken Ost. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and Sparebanken Ost.
Diversification Opportunities for BW Offshore and Sparebanken Ost
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between BWO and Sparebanken is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Sparebanken Ost in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebanken Ost 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 Sparebanken Ost. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebanken Ost has no effect on the direction of BW Offshore i.e., BW Offshore and Sparebanken Ost go up and down completely randomly.
Pair Corralation between BW Offshore and Sparebanken Ost
Assuming the 90 days trading horizon BW Offshore is expected to generate 1.31 times less return on investment than Sparebanken Ost. In addition to that, BW Offshore is 1.13 times more volatile than Sparebanken Ost. It trades about 0.06 of its total potential returns per unit of risk. Sparebanken Ost is currently generating about 0.08 per unit of volatility. If you would invest 5,091 in Sparebanken Ost on September 1, 2024 and sell it today you would earn a total of 1,419 from holding Sparebanken Ost or generate 27.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW Offshore vs. Sparebanken Ost
Performance |
| Timeline |
| BW Offshore |
| Sparebanken Ost |
BW Offshore and Sparebanken Ost Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW Offshore and Sparebanken Ost
The main advantage of trading using opposite BW Offshore and Sparebanken Ost positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore position performs unexpectedly, Sparebanken Ost 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 Sparebanken Ost will offset losses from the drop in Sparebanken Ost's long position.The idea behind BW Offshore and Sparebanken Ost 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.| Sparebanken Ost vs. Shelf Drilling | Sparebanken Ost vs. Odfjell Drilling | Sparebanken Ost vs. Nordic Semiconductor ASA | Sparebanken Ost vs. Lery Seafood Group |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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