Correlation Between Dorian LPG and Permian Basin

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

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

Diversification Opportunities for Dorian LPG and Permian Basin

-0.61

Correlation Coefficient

Dorian LPG  Permian Basin

Excellent diversification

The 3 months correlation between Dorian and Permian is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dorian LPG and Permian Basin Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Basin Royalty and Dorian LPG 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 Dorian LPG are associated (or correlated) with Permian Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Basin Royalty has no effect on the direction of Dorian LPG i.e., Dorian LPG and Permian Basin go up and down completely randomly.

Pair Corralation between Dorian LPG and Permian Basin

Considering the 90-day investment horizon Dorian LPG is expected to generate 0.99 times more return on investment than Permian Basin. However, Dorian LPG is 1.01 times less risky than Permian Basin. It trades about 0.04 of its potential returns per unit of risk. Permian Basin Royalty is currently generating about -0.04 per unit of risk. If you would invest  1,951  in Dorian LPG on September 4, 2024 and sell it today you would earn a total of  491.00  from holding Dorian LPG or generate 25.17% return on investment over 90 days.

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

Dorian LPG  vs.  Permian Basin Royalty

Dorian LPG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dorian LPG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Permian Basin Royalty

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Basin Royalty are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, Permian Basin unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dorian LPG and Permian Basin

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

The idea behind Dorian LPG and Permian Basin Royalty 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.