Correlation Between Hexcel and BWX Technologies

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

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

Diversification Opportunities for Hexcel and BWX Technologies

0.24

Correlation Coefficient

Hexcel  BWX Technologies

Modest diversification

The 3 months correlation between Hexcel and BWX is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and BWX Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BWX Technologies and Hexcel 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 Hexcel are associated (or correlated) with BWX Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BWX Technologies has no effect on the direction of Hexcel i.e., Hexcel and BWX Technologies go up and down completely randomly.

Pair Corralation between Hexcel and BWX Technologies

Considering the 90-day investment horizon Hexcel is expected to generate 4.59 times less return on investment than BWX Technologies. But when comparing it to its historical volatility, Hexcel is 1.19 times less risky than BWX Technologies. It trades about 0.05 of its potential returns per unit of risk. BWX Technologies is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  9,823  in BWX Technologies on September 13, 2024 and sell it today you would earn a total of  2,461  from holding BWX Technologies or generate 25.05% return on investment over 90 days.

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

Hexcel  vs.  BWX Technologies

Hexcel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Hexcel is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

BWX Technologies

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BWX Technologies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, BWX Technologies unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hexcel and BWX Technologies

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

The idea behind Hexcel and BWX Technologies 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.