Correlation Between Babcock Wilcox and AZZ Incorporated

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

Diversification Opportunities for Babcock Wilcox and AZZ Incorporated

-0.41

Correlation Coefficient

Babcock Wilcox  AZZ Incorporated

Very good diversification

The 3 months correlation between Babcock and AZZ is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and AZZ Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AZZ Incorporated 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 AZZ Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AZZ Incorporated has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and AZZ Incorporated go up and down completely randomly.

Pair Corralation between Babcock Wilcox and AZZ Incorporated

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to generate 3.66 times more return on investment than AZZ Incorporated. However, Babcock Wilcox is 3.66 times more volatile than AZZ Incorporated. It trades about -0.06 of its potential returns per unit of risk. AZZ Incorporated is currently generating about -0.22 per unit of risk. If you would invest  106.00  in Babcock Wilcox Enterprises on January 21, 2024 and sell it today you would lose (13.00) from holding Babcock Wilcox Enterprises or give up 12.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Babcock Wilcox Enterprises  vs.  AZZ Incorporated

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.

AZZ Incorporated

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AZZ Incorporated are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, AZZ Incorporated showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Babcock Wilcox and AZZ Incorporated

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

The idea behind Babcock Wilcox Enterprises and AZZ Incorporated 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.