Correlation Between TGS NOPEC and BW Offshore

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

By analyzing existing cross correlation between TGS NOPEC Geophysical and BW Offshore, you can compare the effects of market volatilities on TGS NOPEC and BW Offshore 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 TGS NOPEC with a short position of BW Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of TGS NOPEC and BW Offshore.

Diversification Opportunities for TGS NOPEC and BW Offshore

0.83

Correlation Coefficient

TGS NOPEC  BW Offshore

Very poor diversification

The 3 months correlation between TGS and BWO is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding TGS NOPEC Geophysical and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore and TGS NOPEC 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 TGS NOPEC Geophysical are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of TGS NOPEC i.e., TGS NOPEC and BW Offshore go up and down completely randomly.

Pair Corralation between TGS NOPEC and BW Offshore

Assuming the 90 days trading horizon TGS NOPEC Geophysical is expected to generate 1.31 times more return on investment than BW Offshore. However, TGS NOPEC is 1.31 times more volatile than BW Offshore. It trades about 0.2 of its potential returns per unit of risk. BW Offshore is currently generating about 0.27 per unit of risk. If you would invest  11,578  in TGS NOPEC Geophysical on March 13, 2024 and sell it today you would earn a total of  1,222  from holding TGS NOPEC Geophysical or generate 10.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

TGS NOPEC Geophysical  vs.  BW Offshore

TGS NOPEC Geophysical

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TGS NOPEC Geophysical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, TGS NOPEC disclosed solid returns over the last few months and may actually be approaching a breakup point.

BW Offshore

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, BW Offshore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TGS NOPEC and BW Offshore

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

The idea behind TGS NOPEC Geophysical and BW Offshore 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.