Correlation Between BW LPG and BW Energy
Can any of the company-specific risk be diversified away by investing in both BW LPG and BW Energy 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 BW Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW LPG and BW Energy, you can compare the effects of market volatilities on BW LPG and BW Energy 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 BW Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW LPG and BW Energy.
Diversification Opportunities for BW LPG and BW Energy
Very weak diversification
The 3 months correlation between BWLPG and BWE is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and BW Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Energy 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 BW Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Energy has no effect on the direction of BW LPG i.e., BW LPG and BW Energy go up and down completely randomly.
Pair Corralation between BW LPG and BW Energy
Assuming the 90 days trading horizon BW LPG is expected to generate 1.15 times more return on investment than BW Energy. However, BW LPG is 1.15 times more volatile than BW Energy. It trades about -0.05 of its potential returns per unit of risk. BW Energy is currently generating about -0.07 per unit of risk. If you would invest 14,030 in BW LPG on August 31, 2024 and sell it today you would lose (410.00) from holding BW LPG or give up 2.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW LPG vs. BW Energy
Performance |
| Timeline |
| BW LPG |
| BW Energy |
BW LPG and BW Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW LPG and BW Energy
The main advantage of trading using opposite BW LPG and BW Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW LPG position performs unexpectedly, BW Energy 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 Energy will offset losses from the drop in BW Energy's long position.The idea behind BW LPG and BW Energy 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.| BW Energy vs. BW Offshore | BW Energy vs. Panoro Energy ASA | BW Energy vs. Aker BP ASA | BW Energy vs. BW LPG |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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