Correlation Between Cars and Babcock Wilcox

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

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

Diversification Opportunities for Cars and Babcock Wilcox

0.74

Correlation Coefficient

Cars  Babcock Wilcox

Poor diversification

The 3 months correlation between Cars and Babcock is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc 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 Cars 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 Cars Inc 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 Cars i.e., Cars and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Cars and Babcock Wilcox

Given the investment horizon of 90 days Cars Inc is expected to generate 1.25 times more return on investment than Babcock Wilcox. However, Cars is 1.25 times more volatile than Babcock Wilcox Enterprises. It trades about 0.05 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  994.00  in Cars Inc on January 26, 2024 and sell it today you would earn a total of  692.00  from holding Cars Inc or generate 69.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Cars Inc  vs.  Babcock Wilcox Enterprises

Cars Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cars and Babcock Wilcox

The main advantage of trading using opposite Cars and Babcock Wilcox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars 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 Cars Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.