Correlation Between United Fire and SBM Offshore

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

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

Diversification Opportunities for United Fire and SBM Offshore

-0.08

Correlation Coefficient

United Fire  SBM Offshore

Good diversification

The 3 months correlation between United and SBM is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV and United Fire 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 United Fire Group are associated (or correlated) with SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of United Fire i.e., United Fire and SBM Offshore go up and down completely randomly.

Pair Corralation between United Fire and SBM Offshore

Given the investment horizon of 90 days United Fire Group is expected to generate 1.17 times more return on investment than SBM Offshore. However, United Fire is 1.17 times more volatile than SBM Offshore NV. It trades about 0.38 of its potential returns per unit of risk. SBM Offshore NV is currently generating about -0.24 per unit of risk. If you would invest  2,530  in United Fire Group on September 14, 2024 and sell it today you would earn a total of  556.00  from holding United Fire Group or generate 21.98% return on investment over 90 days.

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

United Fire Group  vs.  SBM Offshore NV

United Fire Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with United Fire and SBM Offshore

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

The idea behind United Fire Group and SBM Offshore NV 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.