Correlation Between BW LPG and Aker BP
Can any of the company-specific risk be diversified away by investing in both BW LPG and Aker BP 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 BW LPG and Aker BP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW LPG and Aker BP ASA, you can compare the effects of market volatilities on BW LPG and Aker BP 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 BW LPG with a short position of Aker BP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW LPG and Aker BP.
Diversification Opportunities for BW LPG and Aker BP
Weak diversification
The 3 months correlation between BWLPG and Aker is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and Aker BP ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aker BP ASA and BW 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 BW LPG are associated (or correlated) with Aker BP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aker BP ASA has no effect on the direction of BW LPG i.e., BW LPG and Aker BP go up and down completely randomly.
Pair Corralation between BW LPG and Aker BP
Assuming the 90 days trading horizon BW LPG is expected to under-perform the Aker BP. In addition to that, BW LPG is 1.61 times more volatile than Aker BP ASA. It trades about -0.08 of its total potential returns per unit of risk. Aker BP ASA is currently generating about -0.01 per unit of volatility. If you would invest 22,788 in Aker BP ASA on August 31, 2024 and sell it today you would lose (148.00) from holding Aker BP ASA or give up 0.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW LPG vs. Aker BP ASA
Performance |
| Timeline |
| BW LPG |
| Aker BP ASA |
BW LPG and Aker BP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW LPG and Aker BP
The main advantage of trading using opposite BW LPG and Aker BP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW LPG position performs unexpectedly, Aker BP 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 Aker BP will offset losses from the drop in Aker BP's long position.The idea behind BW LPG and Aker BP ASA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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