Correlation Between BW LPG and American Shipping

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

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

Diversification Opportunities for BW LPG and American Shipping

-0.05

Correlation Coefficient

BW LPG  American Shipping

Good diversification

The 3 months correlation between BWLPG and American is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and American Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Shipping 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 American Shipping. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Shipping has no effect on the direction of BW LPG i.e., BW LPG and American Shipping go up and down completely randomly.

Pair Corralation between BW LPG and American Shipping

Assuming the 90 days trading horizon BW LPG is expected to under-perform the American Shipping. In addition to that, BW LPG is 1.16 times more volatile than American Shipping. It trades about -0.13 of its total potential returns per unit of risk. American Shipping is currently generating about -0.05 per unit of volatility. If you would invest  2,754  in American Shipping on September 20, 2024 and sell it today you would lose (199.00) from holding American Shipping or give up 7.23% of portfolio value over 90 days.

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

BW LPG  vs.  American Shipping

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.

American Shipping

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BW LPG and American Shipping

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

The idea behind BW LPG and American Shipping 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.