Correlation Between Frontline and Stolt Nielsen

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

By analyzing existing cross correlation between Frontline and Stolt Nielsen Limited, you can compare the effects of market volatilities on Frontline and Stolt Nielsen 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 Stolt Nielsen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontline and Stolt Nielsen.

Diversification Opportunities for Frontline and Stolt Nielsen

0.77

Correlation Coefficient

Frontline  Stolt Nielsen

Poor diversification

The 3 months correlation between Frontline and Stolt is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Stolt Nielsen Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stolt Nielsen Limited 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 Stolt Nielsen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stolt Nielsen Limited has no effect on the direction of Frontline i.e., Frontline and Stolt Nielsen go up and down completely randomly.

Pair Corralation between Frontline and Stolt Nielsen

Assuming the 90 days trading horizon Frontline is expected to under-perform the Stolt Nielsen. In addition to that, Frontline is 1.22 times more volatile than Stolt Nielsen Limited. It trades about -0.28 of its total potential returns per unit of risk. Stolt Nielsen Limited is currently generating about -0.24 per unit of volatility. If you would invest  38,217  in Stolt Nielsen Limited on September 19, 2024 and sell it today you would lose (10,967) from holding Stolt Nielsen Limited or give up 28.7% of portfolio value over 90 days.

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

Frontline  vs.  Stolt Nielsen Limited

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.

Stolt Nielsen Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stolt Nielsen Limited 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 forward 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 Frontline and Stolt Nielsen

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

The idea behind Frontline and Stolt Nielsen Limited 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.