Correlation Between Ingersoll Rand and Babcock Wilcox

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

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

Diversification Opportunities for Ingersoll Rand and Babcock Wilcox

-0.34

Correlation Coefficient

Ingersoll Rand  Babcock Wilcox

Very good diversification

The 3 months correlation between Ingersoll and Babcock is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Ingersoll Rand 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 Ingersoll Rand 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 Ingersoll Rand 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 Ingersoll Rand i.e., Ingersoll Rand and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Ingersoll Rand and Babcock Wilcox

Allowing for the 90-day total investment horizon Ingersoll Rand is expected to generate 0.25 times more return on investment than Babcock Wilcox. However, Ingersoll Rand is 4.05 times less risky than Babcock Wilcox. It trades about -0.32 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.3 per unit of risk. If you would invest  9,448  in Ingersoll Rand on January 24, 2024 and sell it today you would lose (585.00) from holding Ingersoll Rand or give up 6.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Ingersoll Rand  vs.  Babcock Wilcox Enterprises

Ingersoll Rand

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ingersoll Rand are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ingersoll Rand may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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. In spite of fairly stable basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ingersoll Rand and Babcock Wilcox

The main advantage of trading using opposite Ingersoll Rand and Babcock Wilcox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ingersoll Rand 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 Ingersoll Rand 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.