Correlation Between BW LPG and Dno ASA
Can any of the company-specific risk be diversified away by investing in both BW LPG and Dno ASA 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 Dno ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW LPG and Dno ASA, you can compare the effects of market volatilities on BW LPG and Dno ASA 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 Dno ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW LPG and Dno ASA.
Diversification Opportunities for BW LPG and Dno ASA
Very poor diversification
The 3 months correlation between BWLPG and Dno is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and Dno ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dno 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 Dno ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dno ASA has no effect on the direction of BW LPG i.e., BW LPG and Dno ASA go up and down completely randomly.
Pair Corralation between BW LPG and Dno ASA
Assuming the 90 days trading horizon BW LPG is expected to under-perform the Dno ASA. In addition to that, BW LPG is 1.03 times more volatile than Dno ASA. It trades about -0.06 of its total potential returns per unit of risk. Dno ASA is currently generating about 0.02 per unit of volatility. If you would invest 1,032 in Dno ASA on September 5, 2024 and sell it today you would earn a total of 5.00 from holding Dno ASA or generate 0.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW LPG vs. Dno ASA
Performance |
| Timeline |
| BW LPG |
| Dno ASA |
BW LPG and Dno ASA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW LPG and Dno ASA
The main advantage of trading using opposite BW LPG and Dno ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW LPG position performs unexpectedly, Dno ASA 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 Dno ASA will offset losses from the drop in Dno ASA's long position.The idea behind BW LPG and Dno 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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