Correlation Between BW LPG and AP Møller

Can any of the company-specific risk be diversified away by investing in both BW LPG and AP Møller 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 AP Møller into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BW LPG Limited and AP Mller , you can compare the effects of market volatilities on BW LPG and AP Møller 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 AP Møller. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW LPG and AP Møller.

Diversification Opportunities for BW LPG and AP Møller

-0.67

Correlation Coefficient

BW LPG  AP Møller

Excellent diversification

The 3 months correlation between BW9 and DP4B is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG Limited and AP Mller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AP Møller 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 Limited are associated (or correlated) with AP Møller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AP Møller has no effect on the direction of BW LPG i.e., BW LPG and AP Møller go up and down completely randomly.

Pair Corralation between BW LPG and AP Møller

Assuming the 90 days horizon BW LPG Limited is expected to under-perform the AP Møller. But the stock apears to be less risky and, when comparing its historical volatility, BW LPG Limited is 1.02 times less risky than AP Møller. The stock trades about -0.5 of its potential returns per unit of risk. The AP Mller is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  159,450  in AP Mller on September 23, 2024 and sell it today you would lose (4,850) from holding AP Mller or give up 3.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

BW LPG Limited  vs.  AP Mller

BW LPG Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

AP Møller

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AP Mller are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AP Møller may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BW LPG and AP Møller

The main advantage of trading using opposite BW LPG and AP Møller positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW LPG position performs unexpectedly, AP Møller 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 AP Møller will offset losses from the drop in AP Møller's long position.

The idea behind BW LPG Limited and AP Mller 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.

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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.