Correlation Between TORM Plc and BW LPG
Can any of the company-specific risk be diversified away by investing in both TORM Plc and BW LPG 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 TORM Plc and BW LPG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TORM plc and BW LPG, you can compare the effects of market volatilities on TORM Plc and BW LPG 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 TORM Plc with a short position of BW LPG. Check out your portfolio center. Please also check ongoing floating volatility patterns of TORM Plc and BW LPG.
Diversification Opportunities for TORM Plc and BW LPG
Poor diversification
The 3 months correlation between TORM and BWLPG is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding TORM plc and BW LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG and TORM Plc 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 TORM plc are associated (or correlated) with BW LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW LPG has no effect on the direction of TORM Plc i.e., TORM Plc and BW LPG go up and down completely randomly.
Pair Corralation between TORM Plc and BW LPG
Assuming the 90 days trading horizon TORM plc is expected to under-perform the BW LPG. But the stock apears to be less risky and, when comparing its historical volatility, TORM plc is 1.15 times less risky than BW LPG. The stock trades about -0.42 of its potential returns per unit of risk. The BW LPG is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest 14,150 in BW LPG on September 1, 2024 and sell it today you would lose (760.00) from holding BW LPG or give up 5.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
TORM plc vs. BW LPG
Performance |
| Timeline |
| TORM plc |
| BW LPG |
TORM Plc and BW LPG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TORM Plc and BW LPG
The main advantage of trading using opposite TORM Plc and BW LPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TORM Plc position performs unexpectedly, BW LPG 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 LPG will offset losses from the drop in BW LPG's long position.| TORM Plc vs. Danske Bank AS | TORM Plc vs. DSV Panalpina AS | TORM Plc vs. AP Mller | TORM Plc vs. Vestas Wind Systems |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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