Correlation Between Hafnia and Awilco LNG
Can any of the company-specific risk be diversified away by investing in both Hafnia and Awilco LNG 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 Hafnia and Awilco LNG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hafnia and Awilco LNG ASA, you can compare the effects of market volatilities on Hafnia and Awilco LNG 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 Hafnia with a short position of Awilco LNG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hafnia and Awilco LNG.
Diversification Opportunities for Hafnia and Awilco LNG
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Hafnia and Awilco is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Hafnia and Awilco LNG ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Awilco LNG ASA and Hafnia 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 Hafnia are associated (or correlated) with Awilco LNG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Awilco LNG ASA has no effect on the direction of Hafnia i.e., Hafnia and Awilco LNG go up and down completely randomly.
Pair Corralation between Hafnia and Awilco LNG
Assuming the 90 days trading horizon Hafnia is expected to generate 0.42 times more return on investment than Awilco LNG. However, Hafnia is 2.39 times less risky than Awilco LNG. It trades about -0.22 of its potential returns per unit of risk. Awilco LNG ASA is currently generating about -0.21 per unit of risk. If you would invest 7,805 in Hafnia on September 3, 2024 and sell it today you would lose (1,435) from holding Hafnia or give up 18.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hafnia vs. Awilco LNG ASA
Performance |
| Timeline |
| Hafnia |
| Awilco LNG ASA |
Hafnia and Awilco LNG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hafnia and Awilco LNG
The main advantage of trading using opposite Hafnia and Awilco LNG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hafnia position performs unexpectedly, Awilco LNG 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 Awilco LNG will offset losses from the drop in Awilco LNG's long position.The idea behind Hafnia and Awilco LNG 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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