Correlation Between BW Offshore and Pearson PLC

Can any of the company-specific risk be diversified away by investing in both BW Offshore and Pearson PLC 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 Pearson PLC 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 Pearson PLC ADR, you can compare the effects of market volatilities on BW Offshore and Pearson PLC 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 Pearson PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and Pearson PLC.

Diversification Opportunities for BW Offshore and Pearson PLC

0.67

Correlation Coefficient

BW Offshore  Pearson PLC

Poor diversification

The 3 months correlation between BWOFY and Pearson is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and Pearson PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson PLC ADR 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 Pearson PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson PLC ADR has no effect on the direction of BW Offshore i.e., BW Offshore and Pearson PLC go up and down completely randomly.

Pair Corralation between BW Offshore and Pearson PLC

Assuming the 90 days horizon BW Offshore is expected to generate 1.76 times less return on investment than Pearson PLC. In addition to that, BW Offshore is 1.35 times more volatile than Pearson PLC ADR. It trades about 0.1 of its total potential returns per unit of risk. Pearson PLC ADR is currently generating about 0.25 per unit of volatility. If you would invest  1,357  in Pearson PLC ADR on September 29, 2024 and sell it today you would earn a total of  264.00  from holding Pearson PLC ADR or generate 19.45% return on investment over 90 days.

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

BW Offshore Limited  vs.  Pearson PLC ADR

BW Offshore Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, BW Offshore may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pearson PLC ADR

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Pearson PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BW Offshore and Pearson PLC

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

The idea behind BW Offshore Limited and Pearson PLC ADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.