Correlation Between TORM Plc and Frontline
Can any of the company-specific risk be diversified away by investing in both TORM Plc 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 TORM Plc and Frontline into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TORM plc and Frontline, you can compare the effects of market volatilities on TORM Plc 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 TORM Plc with a short position of Frontline. Check out your portfolio center. Please also check ongoing floating volatility patterns of TORM Plc and Frontline.
Diversification Opportunities for TORM Plc and Frontline
Very poor diversification
The 3 months correlation between TORM and Frontline is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding TORM plc and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline 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 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 TORM Plc i.e., TORM Plc and Frontline go up and down completely randomly.
Pair Corralation between TORM Plc and Frontline
Assuming the 90 days trading horizon TORM plc is expected to under-perform the Frontline. But the stock apears to be less risky and, when comparing its historical volatility, TORM plc is 1.15 times less risky than Frontline. The stock trades about -0.01 of its potential returns per unit of risk. The Frontline is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 16,335 in Frontline on November 4, 2024 and sell it today you would earn a total of 3,580 from holding Frontline or generate 21.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
TORM plc vs. Frontline
Performance |
| Timeline |
| TORM plc |
| Frontline |
TORM Plc and Frontline Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TORM Plc and Frontline
The main advantage of trading using opposite TORM Plc and Frontline positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TORM Plc 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.| TORM Plc vs. Dampskibsselskabet Norden AS | TORM Plc vs. FLSmidth Co | TORM Plc vs. Zealand Pharma AS | TORM Plc vs. NKT AS |
| 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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