Correlation Between BW LPG and Safe Bulkers

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

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

Diversification Opportunities for BW LPG and Safe Bulkers

0.47

Correlation Coefficient

BW LPG  Safe Bulkers

Very weak diversification

The 3 months correlation between BWLLY and Safe is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and Safe Bulkers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safe Bulkers 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 are associated (or correlated) with Safe Bulkers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safe Bulkers has no effect on the direction of BW LPG i.e., BW LPG and Safe Bulkers go up and down completely randomly.

Pair Corralation between BW LPG and Safe Bulkers

Assuming the 90 days horizon BW LPG is expected to generate 6.58 times more return on investment than Safe Bulkers. However, BW LPG is 6.58 times more volatile than Safe Bulkers. It trades about 0.06 of its potential returns per unit of risk. Safe Bulkers is currently generating about 0.05 per unit of risk. If you would invest  1,267  in BW LPG on October 7, 2024 and sell it today you would earn a total of  287.00  from holding BW LPG or generate 22.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	56.73%
Values	Daily Returns

BW LPG  vs.  Safe Bulkers

BW LPG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, BW LPG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Safe Bulkers

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Safe Bulkers are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Safe Bulkers is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BW LPG and Safe Bulkers

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

The idea behind BW LPG and Safe Bulkers 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.