Correlation Between Babcock Wilcox and Barnes

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

Diversification Opportunities for Babcock Wilcox and Barnes

-0.3

Correlation Coefficient

Babcock Wilcox  Barnes

Very good diversification

The 3 months correlation between Babcock and Barnes is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Barnes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes Group 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 Barnes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Group has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Barnes go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Barnes

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to under-perform the Barnes. In addition to that, Babcock Wilcox is 1.54 times more volatile than Barnes Group. It trades about -0.34 of its total potential returns per unit of risk. Barnes Group is currently generating about -0.01 per unit of volatility. If you would invest  3,672  in Barnes Group on January 25, 2024 and sell it today you would lose (46.00) from holding Barnes Group or give up 1.25% of portfolio value over 90 days.

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

Babcock Wilcox Enterprises  vs.  Barnes Group

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.

Barnes Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barnes Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental drivers, Barnes sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Babcock Wilcox and Barnes

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

The idea behind Babcock Wilcox Enterprises and Barnes Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.