Correlation Between BW LPG and Eidesvik Offshore
Can any of the company-specific risk be diversified away by investing in both BW LPG and Eidesvik Offshore 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 Eidesvik Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW LPG and Eidesvik Offshore ASA, you can compare the effects of market volatilities on BW LPG and Eidesvik Offshore 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 Eidesvik Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW LPG and Eidesvik Offshore.
Diversification Opportunities for BW LPG and Eidesvik Offshore
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BWLPG and Eidesvik is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and Eidesvik Offshore ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eidesvik Offshore 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 Eidesvik Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eidesvik Offshore ASA has no effect on the direction of BW LPG i.e., BW LPG and Eidesvik Offshore go up and down completely randomly.
Pair Corralation between BW LPG and Eidesvik Offshore
Assuming the 90 days trading horizon BW LPG is expected to generate 1.1 times more return on investment than Eidesvik Offshore. However, BW LPG is 1.1 times more volatile than Eidesvik Offshore ASA. It trades about -0.02 of its potential returns per unit of risk. Eidesvik Offshore ASA is currently generating about -0.03 per unit of risk. If you would invest 15,181 in BW LPG on September 3, 2024 and sell it today you would lose (1,791) from holding BW LPG or give up 11.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW LPG vs. Eidesvik Offshore ASA
Performance |
| Timeline |
| BW LPG |
| Eidesvik Offshore ASA |
BW LPG and Eidesvik Offshore Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW LPG and Eidesvik Offshore
The main advantage of trading using opposite BW LPG and Eidesvik Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW LPG position performs unexpectedly, Eidesvik Offshore 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 Eidesvik Offshore will offset losses from the drop in Eidesvik Offshore's long position.The idea behind BW LPG and Eidesvik Offshore 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.| Eidesvik Offshore vs. BW Energy | Eidesvik Offshore vs. Subsea 7 SA | Eidesvik Offshore vs. BW LPG | Eidesvik Offshore vs. Dno ASA |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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