Correlation Between Stolt Nielsen and BW LPG

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

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

Diversification Opportunities for Stolt Nielsen and BW LPG

0.73

Correlation Coefficient

Stolt Nielsen  BW LPG

Poor diversification

The 3 months correlation between Stolt and BWLPG is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Stolt Nielsen Limited and BW LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG and Stolt Nielsen 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 Stolt Nielsen 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 has no effect on the direction of Stolt Nielsen i.e., Stolt Nielsen and BW LPG go up and down completely randomly.

Pair Corralation between Stolt Nielsen and BW LPG

Assuming the 90 days trading horizon Stolt Nielsen Limited is expected to under-perform the BW LPG. But the stock apears to be less risky and, when comparing its historical volatility, Stolt Nielsen Limited is 1.12 times less risky than BW LPG. The stock trades about -0.24 of its potential returns per unit of risk. The BW LPG is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  14,792  in BW LPG on September 19, 2024 and sell it today you would lose (3,422) from holding BW LPG or give up 23.13% of portfolio value over 90 days.

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

Stolt Nielsen Limited  vs.  BW LPG

Stolt Nielsen Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stolt Nielsen Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

BW LPG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Stolt Nielsen and BW LPG

The main advantage of trading using opposite Stolt Nielsen and BW LPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stolt Nielsen 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 Stolt Nielsen Limited and BW LPG 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.