Correlation Between SBM Offshore and Avient Corp

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

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

Diversification Opportunities for SBM Offshore and Avient Corp

0.29

Correlation Coefficient

SBM Offshore  Avient Corp

Modest diversification

The 3 months correlation between SBM and Avient is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Avient Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avient Corp and SBM 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 SBM Offshore NV are associated (or correlated) with Avient Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avient Corp has no effect on the direction of SBM Offshore i.e., SBM Offshore and Avient Corp go up and down completely randomly.

Pair Corralation between SBM Offshore and Avient Corp

Assuming the 90 days horizon SBM Offshore is expected to generate 1.39 times less return on investment than Avient Corp. But when comparing it to its historical volatility, SBM Offshore NV is 1.03 times less risky than Avient Corp. It trades about 0.04 of its potential returns per unit of risk. Avient Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,294  in Avient Corp on September 14, 2024 and sell it today you would earn a total of  538.00  from holding Avient Corp or generate 12.53% return on investment over 90 days.

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

SBM Offshore NV  vs.  Avient Corp

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

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

Avient Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avient Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Avient Corp is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SBM Offshore and Avient Corp

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

The idea behind SBM Offshore NV and Avient Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.