Correlation Between SBM Offshore and Koninklijke BAM

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

Diversification Opportunities for SBM Offshore and Koninklijke BAM

0.47

Correlation Coefficient

SBM Offshore  Koninklijke BAM

Very weak diversification

The 3 months correlation between SBM and Koninklijke is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Koninklijke BAM Groep in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke BAM Groep 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 Koninklijke BAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke BAM Groep has no effect on the direction of SBM Offshore i.e., SBM Offshore and Koninklijke BAM go up and down completely randomly.

Pair Corralation between SBM Offshore and Koninklijke BAM

Assuming the 90 days trading horizon SBM Offshore is expected to generate 2.34 times less return on investment than Koninklijke BAM. But when comparing it to its historical volatility, SBM Offshore NV is 1.36 times less risky than Koninklijke BAM. It trades about 0.07 of its potential returns per unit of risk. Koninklijke BAM Groep is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  363.00  in Koninklijke BAM Groep on September 5, 2024 and sell it today you would earn a total of  53.00  from holding Koninklijke BAM Groep or generate 14.6% return on investment over 90 days.

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

SBM Offshore NV  vs.  Koninklijke BAM Groep

SBM Offshore NV

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SBM Offshore is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Koninklijke BAM Groep

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Koninklijke BAM Groep are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Koninklijke BAM sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SBM Offshore and Koninklijke BAM

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

The idea behind SBM Offshore NV and Koninklijke BAM Groep 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.