Correlation Between Rockwell Automation and Babcock Wilcox

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

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

Diversification Opportunities for Rockwell Automation and Babcock Wilcox

-0.41

Correlation Coefficient

Rockwell Automation  Babcock Wilcox

Very good diversification

The 3 months correlation between Rockwell and Babcock is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Rockwell Automation and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter and Rockwell Automation 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 Rockwell Automation are associated (or correlated) with Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Rockwell Automation i.e., Rockwell Automation and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Rockwell Automation and Babcock Wilcox

Considering the 90-day investment horizon Rockwell Automation is expected to generate 1.02 times more return on investment than Babcock Wilcox. However, Rockwell Automation is 1.02 times more volatile than Babcock Wilcox Enterprises. It trades about 0.13 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.02 per unit of risk. If you would invest  26,172  in Rockwell Automation on September 13, 2024 and sell it today you would earn a total of  4,120  from holding Rockwell Automation or generate 15.74% return on investment over 90 days.

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

Rockwell Automation  vs.  Babcock Wilcox Enterprises

Rockwell Automation

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockwell Automation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Rockwell Automation disclosed solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rockwell Automation and Babcock Wilcox

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

The idea behind Rockwell Automation and Babcock Wilcox Enterprises 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.