Correlation Between BW Offshore and Analog Devices

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

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

Diversification Opportunities for BW Offshore and Analog Devices

0.04

Correlation Coefficient

BW Offshore  Analog Devices

Significant diversification

The 3 months correlation between BWOFY and Analog is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and BW 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 BW Offshore Limited are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of BW Offshore i.e., BW Offshore and Analog Devices go up and down completely randomly.

Pair Corralation between BW Offshore and Analog Devices

Assuming the 90 days horizon BW Offshore Limited is expected to generate 1.55 times more return on investment than Analog Devices. However, BW Offshore is 1.55 times more volatile than Analog Devices. It trades about 0.09 of its potential returns per unit of risk. Analog Devices is currently generating about -0.03 per unit of risk. If you would invest  472.00  in BW Offshore Limited on August 24, 2024 and sell it today you would earn a total of  78.00  from holding BW Offshore Limited or generate 16.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

BW Offshore Limited  vs.  Analog Devices

BW Offshore Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, BW Offshore showed solid returns over the last few months and may actually be approaching a breakup point.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with BW Offshore and Analog Devices

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

The idea behind BW Offshore Limited and Analog Devices 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.