Correlation Between Golar LNG and Torm PLC

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

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

Diversification Opportunities for Golar LNG and Torm PLC

-0.45

Correlation Coefficient

Golar LNG  Torm PLC

Very good diversification

The 3 months correlation between Golar and Torm is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Golar LNG Limited and Torm PLC Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Torm PLC Class and Golar 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 Golar LNG Limited are associated (or correlated) with Torm PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Torm PLC Class has no effect on the direction of Golar LNG i.e., Golar LNG and Torm PLC go up and down completely randomly.

Pair Corralation between Golar LNG and Torm PLC

Given the investment horizon of 90 days Golar LNG Limited is expected to generate 0.94 times more return on investment than Torm PLC. However, Golar LNG Limited is 1.06 times less risky than Torm PLC. It trades about 0.1 of its potential returns per unit of risk. Torm PLC Class is currently generating about 0.03 per unit of risk. If you would invest  2,088  in Golar LNG Limited on August 31, 2024 and sell it today you would earn a total of  1,849  from holding Golar LNG Limited or generate 88.55% return on investment over 90 days.

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

Golar LNG Limited  vs.  Torm PLC Class

Golar LNG Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Golar LNG Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Golar LNG reported solid returns over the last few months and may actually be approaching a breakup point.

Torm PLC Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Torm PLC Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Golar LNG and Torm PLC

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

The idea behind Golar LNG Limited and Torm PLC Class 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.