Correlation Between Borr Drilling and Bengal Energy

Can any of the company-specific risk be diversified away by investing in both Borr Drilling and Bengal Energy 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 Borr Drilling and Bengal Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Borr Drilling and Bengal Energy, you can compare the effects of market volatilities on Borr Drilling and Bengal Energy 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 Borr Drilling with a short position of Bengal Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Borr Drilling and Bengal Energy.

Diversification Opportunities for Borr Drilling and Bengal Energy

0.54

Correlation Coefficient

Borr Drilling  Bengal Energy

Very weak diversification

The 3 months correlation between Borr and Bengal is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Borr Drilling and Bengal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bengal Energy and Borr Drilling 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 Borr Drilling are associated (or correlated) with Bengal Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bengal Energy has no effect on the direction of Borr Drilling i.e., Borr Drilling and Bengal Energy go up and down completely randomly.

Pair Corralation between Borr Drilling and Bengal Energy

Given the investment horizon of 90 days Borr Drilling is expected to under-perform the Bengal Energy. But the stock apears to be less risky and, when comparing its historical volatility, Borr Drilling is 7.82 times less risky than Bengal Energy. The stock trades about -0.13 of its potential returns per unit of risk. The Bengal Energy is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Bengal Energy on September 4, 2024 and sell it today you would earn a total of  0.05  from holding Bengal Energy or generate 5.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Borr Drilling  vs.  Bengal Energy

Borr Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Borr Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Bengal Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bengal Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, Bengal Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Borr Drilling and Bengal Energy

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

The idea behind Borr Drilling and Bengal Energy 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.