Correlation Between BW Offshore and AKITA Drilling

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

By analyzing existing cross correlation between BW Offshore Limited and AKITA Drilling, you can compare the effects of market volatilities on BW Offshore and AKITA Drilling 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 AKITA Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and AKITA Drilling.

Diversification Opportunities for BW Offshore and AKITA Drilling

-0.32

Correlation Coefficient

BW Offshore  AKITA Drilling

Very good diversification

The 3 months correlation between BWOFY and AKITA is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling 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 Limited are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of BW Offshore i.e., BW Offshore and AKITA Drilling go up and down completely randomly.

Pair Corralation between BW Offshore and AKITA Drilling

Assuming the 90 days horizon BW Offshore Limited is expected to generate 0.47 times more return on investment than AKITA Drilling. However, BW Offshore Limited is 2.11 times less risky than AKITA Drilling. It trades about 0.04 of its potential returns per unit of risk. AKITA Drilling is currently generating about 0.01 per unit of risk. If you would invest  459.00  in BW Offshore Limited on September 26, 2024 and sell it today you would earn a total of  96.00  from holding BW Offshore Limited or generate 20.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.68%
Values	Daily Returns

BW Offshore Limited  vs.  AKITA Drilling

BW Offshore Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Offshore Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, BW Offshore is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

AKITA Drilling

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AKITA Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BW Offshore and AKITA Drilling

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

The idea behind BW Offshore Limited and AKITA Drilling 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.