Correlation Between BW LPG and Odfjell B

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

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

Diversification Opportunities for BW LPG and Odfjell B

0.87

Correlation Coefficient

BW LPG  Odfjell B

Very poor diversification

The 3 months correlation between BWLPG and Odfjell is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and Odfjell B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odfjell B 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 Odfjell B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odfjell B has no effect on the direction of BW LPG i.e., BW LPG and Odfjell B go up and down completely randomly.

Pair Corralation between BW LPG and Odfjell B

Assuming the 90 days trading horizon BW LPG is expected to generate 1.02 times more return on investment than Odfjell B. However, BW LPG is 1.02 times more volatile than Odfjell B. It trades about -0.16 of its potential returns per unit of risk. Odfjell B is currently generating about -0.23 per unit of risk. If you would invest  14,792  in BW LPG on September 19, 2024 and sell it today you would lose (3,422) from holding BW LPG or give up 23.13% of portfolio value over 90 days.

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

BW LPG  vs.  Odfjell B

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.

Odfjell B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Odfjell B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with BW LPG and Odfjell B

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

The idea behind BW LPG and Odfjell B 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.