Correlation Between Hafnia and BW LPG

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

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

Diversification Opportunities for Hafnia and BW LPG

0.88

Correlation Coefficient

Hafnia  BW LPG

Very poor diversification

The 3 months correlation between Hafnia and BWLLF is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Hafnia Limited and BW LPG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG Limited and Hafnia 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 Hafnia Limited are associated (or correlated) with BW LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW LPG Limited has no effect on the direction of Hafnia i.e., Hafnia and BW LPG go up and down completely randomly.

Pair Corralation between Hafnia and BW LPG

Assuming the 90 days horizon Hafnia is expected to generate 1.25 times less return on investment than BW LPG. But when comparing it to its historical volatility, Hafnia Limited is 1.7 times less risky than BW LPG. It trades about 0.12 of its potential returns per unit of risk. BW LPG Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,358  in BW LPG Limited on September 14, 2024 and sell it today you would earn a total of  483.00  from holding BW LPG Limited or generate 35.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.91%
Values	Daily Returns

Hafnia Limited  vs.  BW LPG Limited

Hafnia Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hafnia Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hafnia is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

BW LPG Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, BW LPG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hafnia and BW LPG

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

The idea behind Hafnia Limited and BW LPG 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.