Correlation Between Pacific Basin and Safe Bulkers

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

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

Diversification Opportunities for Pacific Basin and Safe Bulkers

-0.02

Correlation Coefficient

Pacific Basin  Safe Bulkers

Good diversification

The 3 months correlation between Pacific and Safe is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Basin Shipping and Safe Bulkers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safe Bulkers and Pacific Basin 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 Pacific Basin Shipping are associated (or correlated) with Safe Bulkers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safe Bulkers has no effect on the direction of Pacific Basin i.e., Pacific Basin and Safe Bulkers go up and down completely randomly.

Pair Corralation between Pacific Basin and Safe Bulkers

Assuming the 90 days horizon Pacific Basin Shipping is expected to generate 9.98 times more return on investment than Safe Bulkers. However, Pacific Basin is 9.98 times more volatile than Safe Bulkers. It trades about 0.02 of its potential returns per unit of risk. Safe Bulkers is currently generating about 0.09 per unit of risk. If you would invest  500.00  in Pacific Basin Shipping on September 14, 2024 and sell it today you would lose (10.00) from holding Pacific Basin Shipping or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Pacific Basin Shipping  vs.  Safe Bulkers

Pacific Basin Shipping

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Basin Shipping are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Pacific Basin may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Safe Bulkers

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Safe Bulkers are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Safe Bulkers is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Pacific Basin and Safe Bulkers

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

The idea behind Pacific Basin Shipping and Safe Bulkers 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.