Correlation Between Babcock Wilcox and Acuity Brands

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Can any of the company-specific risk be diversified away by investing in both Babcock Wilcox and Acuity Brands 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 Acuity Brands 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 Acuity Brands, you can compare the effects of market volatilities on Babcock Wilcox and Acuity Brands 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 Acuity Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Babcock Wilcox and Acuity Brands.

Diversification Opportunities for Babcock Wilcox and Acuity Brands

-0.42
  Correlation Coefficient

Very good diversification

The 3 months correlation between Babcock and Acuity is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Acuity Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acuity Brands 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 Acuity Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acuity Brands has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Acuity Brands go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Acuity Brands

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to under-perform the Acuity Brands. In addition to that, Babcock Wilcox is 5.11 times more volatile than Acuity Brands. It trades about -0.07 of its total potential returns per unit of risk. Acuity Brands is currently generating about 0.21 per unit of volatility. If you would invest  16,106  in Acuity Brands on December 29, 2023 and sell it today you would earn a total of  10,767  from holding Acuity Brands or generate 66.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Babcock Wilcox Enterprises  vs.  Acuity Brands

 Performance 
       Timeline  
Babcock Wilcox Enter 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 weak basic indicators, Babcock Wilcox may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Acuity Brands 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Acuity Brands are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Acuity Brands demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox and Acuity Brands Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Babcock Wilcox and Acuity Brands

The main advantage of trading using opposite Babcock Wilcox and Acuity Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Babcock Wilcox position performs unexpectedly, Acuity Brands 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 Acuity Brands will offset losses from the drop in Acuity Brands' long position.
The idea behind Babcock Wilcox Enterprises and Acuity Brands 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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