Correlation Between Torm PLC and Scorpio Tankers

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

By analyzing existing cross correlation between Torm PLC Class and Scorpio Tankers, you can compare the effects of market volatilities on Torm PLC and Scorpio 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 Torm PLC with a short position of Scorpio Tankers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Torm PLC and Scorpio Tankers.

Diversification Opportunities for Torm PLC and Scorpio Tankers

0.95

Correlation Coefficient

Torm PLC  Scorpio Tankers

Almost no diversification

The 3 months correlation between Torm and Scorpio is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Torm PLC Class and Scorpio Tankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scorpio Tankers and Torm PLC 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 Torm PLC Class are associated (or correlated) with Scorpio Tankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scorpio Tankers has no effect on the direction of Torm PLC i.e., Torm PLC and Scorpio Tankers go up and down completely randomly.

Pair Corralation between Torm PLC and Scorpio Tankers

Given the investment horizon of 90 days Torm PLC Class is expected to under-perform the Scorpio Tankers. In addition to that, Torm PLC is 1.34 times more volatile than Scorpio Tankers. It trades about -0.28 of its total potential returns per unit of risk. Scorpio Tankers is currently generating about -0.25 per unit of volatility. If you would invest  6,748  in Scorpio Tankers on August 31, 2024 and sell it today you would lose (1,682) from holding Scorpio Tankers or give up 24.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Torm PLC Class  vs.  Scorpio Tankers

Torm PLC Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Torm PLC Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Scorpio Tankers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scorpio Tankers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak 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.

Pair Trading with Torm PLC and Scorpio Tankers

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

The idea behind Torm PLC Class and Scorpio 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..