Correlation Between SBM Offshore and United Airlines

Can any of the company-specific risk be diversified away by investing in both SBM Offshore and United Airlines 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 United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SBM Offshore NV and United Airlines Holdings, you can compare the effects of market volatilities on SBM Offshore and United Airlines 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 United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and United Airlines.

Diversification Opportunities for SBM Offshore and United Airlines

0.43

Correlation Coefficient

SBM Offshore  United Airlines

Very weak diversification

The 3 months correlation between SBM and United is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 NV are associated (or correlated) with United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of SBM Offshore i.e., SBM Offshore and United Airlines go up and down completely randomly.

Pair Corralation between SBM Offshore and United Airlines

Assuming the 90 days trading horizon SBM Offshore NV is expected to under-perform the United Airlines. But the stock apears to be less risky and, when comparing its historical volatility, SBM Offshore NV is 2.52 times less risky than United Airlines. The stock trades about -0.29 of its potential returns per unit of risk. The United Airlines Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,710  in United Airlines Holdings on September 25, 2024 and sell it today you would earn a total of  218.00  from holding United Airlines Holdings or generate 2.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

SBM Offshore NV  vs.  United Airlines Holdings

SBM Offshore NV

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, SBM Offshore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

United Airlines Holdings

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, United Airlines unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SBM Offshore and United Airlines

The main advantage of trading using opposite SBM Offshore and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore position performs unexpectedly, United Airlines 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 United Airlines will offset losses from the drop in United Airlines' long position.

The idea behind SBM Offshore NV and United Airlines Holdings 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.