Correlation Between BW Offshore and Frontline
Can any of the company-specific risk be diversified away by investing in both BW Offshore and Frontline 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 Offshore and Frontline into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW Offshore and Frontline, you can compare the effects of market volatilities on BW Offshore and Frontline 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 Offshore with a short position of Frontline. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and Frontline.
Diversification Opportunities for BW Offshore and Frontline
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between BWO and Frontline is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline and BW Offshore 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 Offshore are associated (or correlated) with Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of BW Offshore i.e., BW Offshore and Frontline go up and down completely randomly.
Pair Corralation between BW Offshore and Frontline
Assuming the 90 days trading horizon BW Offshore is expected to generate 2.33 times less return on investment than Frontline. But when comparing it to its historical volatility, BW Offshore is 1.3 times less risky than Frontline. It trades about 0.04 of its potential returns per unit of risk. Frontline is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 10,172 in Frontline on August 29, 2024 and sell it today you would earn a total of 10,678 from holding Frontline or generate 104.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW Offshore vs. Frontline
Performance |
| Timeline |
| BW Offshore |
| Frontline |
BW Offshore and Frontline Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW Offshore and Frontline
The main advantage of trading using opposite BW Offshore and Frontline positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore position performs unexpectedly, Frontline 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 Frontline will offset losses from the drop in Frontline's long position.The idea behind BW Offshore and Frontline 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.| Frontline vs. Golden Ocean Group | Frontline vs. BW LPG | Frontline vs. FLEX LNG | Frontline vs. Avance Gas Holding |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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