Correlation Between Babcock Wilcox and SLM Corp

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

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

Diversification Opportunities for Babcock Wilcox and SLM Corp

0.06

Correlation Coefficient

Babcock Wilcox  SLM Corp

Significant diversification

The 3 months correlation between Babcock and SLM is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and SLM Corp Pb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLM Corp Pb and Babcock Wilcox 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 Babcock Wilcox Enterprises are associated (or correlated) with SLM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLM Corp Pb has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and SLM Corp go up and down completely randomly.

Pair Corralation between Babcock Wilcox and SLM Corp

Assuming the 90 days horizon Babcock Wilcox is expected to generate 1.53 times less return on investment than SLM Corp. In addition to that, Babcock Wilcox is 3.32 times more volatile than SLM Corp Pb. It trades about 0.02 of its total potential returns per unit of risk. SLM Corp Pb is currently generating about 0.08 per unit of volatility. If you would invest  4,992  in SLM Corp Pb on September 16, 2024 and sell it today you would earn a total of  2,408  from holding SLM Corp Pb or generate 48.24% return on investment over 90 days.

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

Babcock Wilcox Enterprises  vs.  SLM Corp Pb

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

SLM Corp Pb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SLM Corp Pb has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, SLM Corp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Babcock Wilcox and SLM Corp

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

The idea behind Babcock Wilcox Enterprises and SLM Corp Pb 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.