Correlation Between BW LPG and 2020 Bulkers

Can any of the company-specific risk be diversified away by investing in both BW LPG and 2020 Bulkers 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 BW LPG and 2020 Bulkers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BW LPG and 2020 Bulkers, you can compare the effects of market volatilities on BW LPG and 2020 Bulkers 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 BW LPG with a short position of 2020 Bulkers. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW LPG and 2020 Bulkers.

Diversification Opportunities for BW LPG and 2020 Bulkers

0.83

Correlation Coefficient

BW LPG  2020 Bulkers

Very poor diversification

The 3 months correlation between BWLPG and 2020 is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and 2020 Bulkers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2020 Bulkers and BW LPG 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 BW LPG are associated (or correlated) with 2020 Bulkers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2020 Bulkers has no effect on the direction of BW LPG i.e., BW LPG and 2020 Bulkers go up and down completely randomly.

Pair Corralation between BW LPG and 2020 Bulkers

Assuming the 90 days trading horizon BW LPG is expected to under-perform the 2020 Bulkers. In addition to that, BW LPG is 1.05 times more volatile than 2020 Bulkers. It trades about -0.14 of its total potential returns per unit of risk. 2020 Bulkers is currently generating about -0.06 per unit of volatility. If you would invest  13,760  in 2020 Bulkers on September 12, 2024 and sell it today you would lose (1,240) from holding 2020 Bulkers or give up 9.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

BW LPG  vs.  2020 Bulkers

BW LPG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

2020 Bulkers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 2020 Bulkers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with BW LPG and 2020 Bulkers

The main advantage of trading using opposite BW LPG and 2020 Bulkers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW LPG position performs unexpectedly, 2020 Bulkers 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 2020 Bulkers will offset losses from the drop in 2020 Bulkers' long position.

The idea behind BW LPG and 2020 Bulkers 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.