Correlation Between BW LPG and Avance Gas

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

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

Diversification Opportunities for BW LPG and Avance Gas

0.65

Correlation Coefficient

BW LPG  Avance Gas

Poor diversification

The 3 months correlation between BWLPG and Avance is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BW LPG and Avance Gas Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avance Gas Holding 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 Avance Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avance Gas Holding has no effect on the direction of BW LPG i.e., BW LPG and Avance Gas go up and down completely randomly.

Pair Corralation between BW LPG and Avance Gas

Assuming the 90 days trading horizon BW LPG is expected to under-perform the Avance Gas. But the stock apears to be less risky and, when comparing its historical volatility, BW LPG is 1.01 times less risky than Avance Gas. The stock trades about -0.09 of its potential returns per unit of risk. The Avance Gas Holding is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,907  in Avance Gas Holding on September 2, 2024 and sell it today you would earn a total of  433.00  from holding Avance Gas Holding or generate 3.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

BW LPG  vs.  Avance Gas Holding

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 conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Avance Gas Holding

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avance Gas Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Avance Gas is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with BW LPG and Avance Gas

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

The idea behind BW LPG and Avance Gas Holding 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.