Correlation Between BW Offshore and Odfjell B

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

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

Diversification Opportunities for BW Offshore and Odfjell B

0.4

Correlation Coefficient

BW Offshore  Odfjell B

Very weak diversification

The 3 months correlation between BWO and Odfjell is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Odfjell B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odfjell B and BW 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 BW Offshore are associated (or correlated) with Odfjell B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odfjell B has no effect on the direction of BW Offshore i.e., BW Offshore and Odfjell B go up and down completely randomly.

Pair Corralation between BW Offshore and Odfjell B

Assuming the 90 days trading horizon BW Offshore is expected to generate 1.18 times more return on investment than Odfjell B. However, BW Offshore is 1.18 times more volatile than Odfjell B. It trades about -0.05 of its potential returns per unit of risk. Odfjell B is currently generating about -0.25 per unit of risk. If you would invest  2,731  in BW Offshore on September 19, 2024 and sell it today you would lose (76.00) from holding BW Offshore or give up 2.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

BW Offshore  vs.  Odfjell B

BW Offshore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Offshore has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, BW Offshore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Odfjell B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Odfjell B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with BW Offshore and Odfjell B

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

The idea behind BW Offshore and Odfjell B 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.