Correlation Between Whiting Petroleum and Babcock Wilcox

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Can any of the company-specific risk be diversified away by investing in both Whiting Petroleum 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 Whiting Petroleum and Babcock Wilcox into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Whiting Petroleum and Babcock Wilcox Enterprises, you can compare the effects of market volatilities on Whiting Petroleum 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 Whiting Petroleum with a short position of Babcock Wilcox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Whiting Petroleum and Babcock Wilcox.

Diversification Opportunities for Whiting Petroleum and Babcock Wilcox

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  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Whiting and Babcock is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Whiting Petroleum 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 Whiting Petroleum 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 Whiting Petroleum 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 Whiting Petroleum i.e., Whiting Petroleum and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Whiting Petroleum and Babcock Wilcox

Considering the 90-day investment horizon Whiting Petroleum is expected to generate 0.56 times more return on investment than Babcock Wilcox. However, Whiting Petroleum is 1.77 times less risky than Babcock Wilcox. It trades about -0.05 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.03 per unit of risk. If you would invest  8,005  in Whiting Petroleum on December 29, 2023 and sell it today you would lose (1,202) from holding Whiting Petroleum or give up 15.02% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy15.15%
ValuesDaily Returns

Whiting Petroleum  vs.  Babcock Wilcox Enterprises

 Performance 
       Timeline  
Whiting Petroleum 

Risk-Adjusted Performance

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Over the last 90 days Whiting Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Whiting Petroleum is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.
Babcock Wilcox Enter 

Risk-Adjusted Performance

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

Whiting Petroleum and Babcock Wilcox Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Whiting Petroleum and Babcock Wilcox

The main advantage of trading using opposite Whiting Petroleum and Babcock Wilcox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Whiting Petroleum 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 Whiting Petroleum 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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