Correlation Between Babcock Wilcox and Eagle Point

Can any of the company-specific risk be diversified away by investing in both Babcock Wilcox and Eagle Point 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 Eagle Point 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 Eagle Point Credit, you can compare the effects of market volatilities on Babcock Wilcox and Eagle Point 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 Eagle Point. Check out your portfolio center. Please also check ongoing floating volatility patterns of Babcock Wilcox and Eagle Point.

Diversification Opportunities for Babcock Wilcox and Eagle Point

0.21

Correlation Coefficient

Babcock Wilcox  Eagle Point

Modest diversification

The 3 months correlation between Babcock and Eagle is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Eagle Point Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Point Credit 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 Eagle Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Point Credit has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Eagle Point go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Eagle Point

Given the investment horizon of 90 days Babcock Wilcox Enterprises is expected to generate 4.0 times more return on investment than Eagle Point. However, Babcock Wilcox is 4.0 times more volatile than Eagle Point Credit. It trades about 0.04 of its potential returns per unit of risk. Eagle Point Credit is currently generating about 0.08 per unit of risk. If you would invest  2,043  in Babcock Wilcox Enterprises on September 19, 2024 and sell it today you would earn a total of  54.00  from holding Babcock Wilcox Enterprises or generate 2.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Babcock Wilcox Enterprises  vs.  Eagle Point Credit

Babcock Wilcox Enter

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eagle Point Credit

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Point Credit are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, Eagle Point is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Babcock Wilcox and Eagle Point

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

The idea behind Babcock Wilcox Enterprises and Eagle Point Credit 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.