Correlation Between SBM OFFSHORE and American States
Can any of the company-specific risk be diversified away by investing in both SBM OFFSHORE and American States 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 American States into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SBM OFFSHORE and American States Water, you can compare the effects of market volatilities on SBM OFFSHORE and American States 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 American States. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM OFFSHORE and American States.
Diversification Opportunities for SBM OFFSHORE and American States
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SBM and American is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding SBM OFFSHORE and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water 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 are associated (or correlated) with American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of SBM OFFSHORE i.e., SBM OFFSHORE and American States go up and down completely randomly.
Pair Corralation between SBM OFFSHORE and American States
Assuming the 90 days trading horizon SBM OFFSHORE is expected to generate 1.12 times more return on investment than American States. However, SBM OFFSHORE is 1.12 times more volatile than American States Water. It trades about 0.04 of its potential returns per unit of risk. American States Water is currently generating about -0.01 per unit of risk. If you would invest 1,371 in SBM OFFSHORE on August 26, 2024 and sell it today you would earn a total of 429.00 from holding SBM OFFSHORE or generate 31.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SBM OFFSHORE vs. American States Water
Performance |
| Timeline |
| SBM OFFSHORE |
| American States Water |
SBM OFFSHORE and American States Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SBM OFFSHORE and American States
The main advantage of trading using opposite SBM OFFSHORE and American States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM OFFSHORE position performs unexpectedly, American States 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 American States will offset losses from the drop in American States' long position.| SBM OFFSHORE vs. Vulcan Materials | SBM OFFSHORE vs. Goodyear Tire Rubber | SBM OFFSHORE vs. Penn National Gaming | SBM OFFSHORE vs. THRACE PLASTICS |
| American States vs. MEDICAL FACILITIES NEW | American States vs. Public Storage | American States vs. SBM OFFSHORE | American States vs. DATAGROUP SE |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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