Correlation Between FLEX LNG and American Shipping

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

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

Diversification Opportunities for FLEX LNG and American Shipping

0.3

Correlation Coefficient

FLEX LNG  American Shipping

Weak diversification

The 3 months correlation between FLEX and American is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding FLEX LNG and American Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Shipping and FLEX LNG 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 FLEX LNG 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 FLEX LNG i.e., FLEX LNG and American Shipping go up and down completely randomly.

Pair Corralation between FLEX LNG and American Shipping

Assuming the 90 days trading horizon FLEX LNG is expected to under-perform the American Shipping. But the stock apears to be less risky and, when comparing its historical volatility, FLEX LNG is 1.09 times less risky than American Shipping. The stock trades about -0.08 of its potential returns per unit of risk. The American Shipping is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,724  in American Shipping on September 24, 2024 and sell it today you would lose (189.00) from holding American Shipping or give up 6.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

FLEX LNG  vs.  American Shipping

FLEX LNG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FLEX LNG 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.

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 FLEX LNG and American Shipping

The main advantage of trading using opposite FLEX LNG and American Shipping positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FLEX LNG 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 FLEX LNG 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.