Correlation Between Babcock Wilcox and ABB

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

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

Diversification Opportunities for Babcock Wilcox and ABB

-0.57

Correlation Coefficient

Babcock Wilcox  ABB

Excellent diversification

The 3 months correlation between Babcock and ABB is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and ABB Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB Ltd ADR and Babcock Wilcox 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 Babcock Wilcox Enterprises are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB Ltd ADR has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and ABB go up and down completely randomly.

Pair Corralation between Babcock Wilcox and ABB

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to under-perform the ABB. In addition to that, Babcock Wilcox is 6.48 times more volatile than ABB Ltd ADR. It trades about -0.06 of its total potential returns per unit of risk. ABB Ltd ADR is currently generating about 0.14 per unit of volatility. If you would invest  3,559  in ABB Ltd ADR on January 21, 2024 and sell it today you would earn a total of  341.00  from holding ABB Ltd ADR or generate 9.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	23.6%
Values	Daily Returns

Babcock Wilcox Enterprises  vs.  ABB Ltd ADR

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 latest unsteady performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

ABB Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABB Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, ABB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Babcock Wilcox and ABB

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

The idea behind Babcock Wilcox Enterprises and ABB Ltd ADR 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.

Check out your portfolio center.

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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.