Correlation Between Frontline and BW Offshore

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

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

Diversification Opportunities for Frontline and BW Offshore

0.49

Correlation Coefficient

Frontline  BW Offshore

Very weak diversification

The 3 months correlation between Frontline and BWO is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore and Frontline 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 Frontline are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of Frontline i.e., Frontline and BW Offshore go up and down completely randomly.

Pair Corralation between Frontline and BW Offshore

Assuming the 90 days trading horizon Frontline is expected to under-perform the BW Offshore. But the stock apears to be less risky and, when comparing its historical volatility, Frontline is 1.1 times less risky than BW Offshore. The stock trades about -0.28 of its potential returns per unit of risk. The BW Offshore is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,683  in BW Offshore on September 19, 2024 and sell it today you would lose (28.00) from holding BW Offshore or give up 1.04% of portfolio value over 90 days.

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

Frontline  vs.  BW Offshore

Frontline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontline 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 basic 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.

BW Offshore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Offshore has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, BW Offshore 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 Frontline and BW Offshore

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

The idea behind Frontline and BW Offshore 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.