Correlation Between Sinosteel Luonai and Babcock Wilcox

Can any of the company-specific risk be diversified away by investing in both Sinosteel Luonai and Babcock Wilcox 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 Sinosteel Luonai and Babcock Wilcox into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sinosteel Luonai Materials and Babcock Wilcox Enterprises,, you can compare the effects of market volatilities on Sinosteel Luonai and Babcock Wilcox 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 Sinosteel Luonai with a short position of Babcock Wilcox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinosteel Luonai and Babcock Wilcox.

Diversification Opportunities for Sinosteel Luonai and Babcock Wilcox

0.77

Correlation Coefficient

Sinosteel Luonai  Babcock Wilcox

Poor diversification

The 3 months correlation between Sinosteel and Babcock is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sinosteel Luonai Materials and Babcock Wilcox Enterprises, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter and Sinosteel Luonai 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 Sinosteel Luonai Materials are associated (or correlated) with Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Sinosteel Luonai i.e., Sinosteel Luonai and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Sinosteel Luonai and Babcock Wilcox

Assuming the 90 days trading horizon Sinosteel Luonai Materials is expected to generate 4.76 times more return on investment than Babcock Wilcox. However, Sinosteel Luonai is 4.76 times more volatile than Babcock Wilcox Enterprises,. It trades about 0.17 of its potential returns per unit of risk. Babcock Wilcox Enterprises, is currently generating about 0.24 per unit of risk. If you would invest  305.00  in Sinosteel Luonai Materials on August 31, 2024 and sell it today you would earn a total of  115.00  from holding Sinosteel Luonai Materials or generate 37.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.48%
Values	Daily Returns

Sinosteel Luonai Materials  vs.  Babcock Wilcox Enterprises,

Sinosteel Luonai Mat

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sinosteel Luonai Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinosteel Luonai sustained solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox Enter

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises, are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Babcock Wilcox may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Sinosteel Luonai and Babcock Wilcox

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

The idea behind Sinosteel Luonai Materials and Babcock Wilcox Enterprises, 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.