Correlation Between Northern Ocean and BW Offshore
Can any of the company-specific risk be diversified away by investing in both Northern Ocean and BW Offshore 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 Northern Ocean and BW Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Ocean and BW Offshore, you can compare the effects of market volatilities on Northern Ocean and BW Offshore 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 Northern Ocean with a short position of BW Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Ocean and BW Offshore.
Diversification Opportunities for Northern Ocean and BW Offshore
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Northern and BWO is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Northern Ocean and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore and Northern Ocean 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 Northern Ocean are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of Northern Ocean i.e., Northern Ocean and BW Offshore go up and down completely randomly.
Pair Corralation between Northern Ocean and BW Offshore
Assuming the 90 days trading horizon Northern Ocean is expected to under-perform the BW Offshore. In addition to that, Northern Ocean is 1.37 times more volatile than BW Offshore. It trades about -0.02 of its total potential returns per unit of risk. BW Offshore is currently generating about 0.04 per unit of volatility. If you would invest 2,273 in BW Offshore on August 31, 2024 and sell it today you would earn a total of 517.00 from holding BW Offshore or generate 22.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.73% |
| Values | Daily Returns |
Northern Ocean vs. BW Offshore
Performance |
| Timeline |
| Northern Ocean |
| BW Offshore |
Northern Ocean and BW Offshore Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Ocean and BW Offshore
The main advantage of trading using opposite Northern Ocean and BW Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Ocean position performs unexpectedly, BW Offshore 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 BW Offshore will offset losses from the drop in BW Offshore's long position.| Northern Ocean vs. Odfjell Drilling | Northern Ocean vs. Shelf Drilling | Northern Ocean vs. Deep Value Driller | Northern Ocean vs. Borr Drilling |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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