Correlation Between Flex LNG and Epiroc AB

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

By analyzing existing cross correlation between Flex LNG and Epiroc AB, you can compare the effects of market volatilities on Flex LNG and Epiroc AB 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 Epiroc AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flex LNG and Epiroc AB.

Diversification Opportunities for Flex LNG and Epiroc AB

-0.37

Correlation Coefficient

Flex LNG  Epiroc AB

Very good diversification

The 3 months correlation between Flex and Epiroc is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Flex LNG and Epiroc AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epiroc AB 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 Epiroc AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epiroc AB has no effect on the direction of Flex LNG i.e., Flex LNG and Epiroc AB go up and down completely randomly.

Pair Corralation between Flex LNG and Epiroc AB

Assuming the 90 days trading horizon Flex LNG is expected to under-perform the Epiroc AB. In addition to that, Flex LNG is 1.05 times more volatile than Epiroc AB. It trades about -0.11 of its total potential returns per unit of risk. Epiroc AB is currently generating about 0.09 per unit of volatility. If you would invest  16,969  in Epiroc AB on September 12, 2024 and sell it today you would earn a total of  1,531  from holding Epiroc AB or generate 9.02% return on investment over 90 days.

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

Flex LNG  vs.  Epiroc AB

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. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Epiroc AB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epiroc AB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Epiroc AB may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Flex LNG and Epiroc AB

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

The idea behind Flex LNG and Epiroc AB 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.