Correlation Between Dorian LPG and Teekay Tankers

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

By analyzing existing cross correlation between Dorian LPG and Teekay Tankers, you can compare the effects of market volatilities on Dorian LPG and Teekay Tankers 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 Teekay Tankers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dorian LPG and Teekay Tankers.

Diversification Opportunities for Dorian LPG and Teekay Tankers

0.91

Correlation Coefficient

Dorian LPG  Teekay Tankers

Almost no diversification

The 3 months correlation between Dorian and Teekay is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Dorian LPG and Teekay Tankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teekay Tankers 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 Teekay Tankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teekay Tankers has no effect on the direction of Dorian LPG i.e., Dorian LPG and Teekay Tankers go up and down completely randomly.

Pair Corralation between Dorian LPG and Teekay Tankers

Considering the 90-day investment horizon Dorian LPG is expected to generate 1.02 times more return on investment than Teekay Tankers. However, Dorian LPG is 1.02 times more volatile than Teekay Tankers. It trades about 0.07 of its potential returns per unit of risk. Teekay Tankers is currently generating about 0.05 per unit of risk. If you would invest  1,263  in Dorian LPG on August 31, 2024 and sell it today you would earn a total of  1,184  from holding Dorian LPG or generate 93.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.79%
Values	Daily Returns

Dorian LPG  vs.  Teekay Tankers

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 December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Teekay Tankers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teekay Tankers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Dorian LPG and Teekay Tankers

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

The idea behind Dorian LPG and Teekay Tankers 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.