Correlation Between Dynagas LNG and Frontline

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

By analyzing existing cross correlation between Dynagas LNG Partners and Frontline, you can compare the effects of market volatilities on Dynagas LNG 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 Dynagas LNG with a short position of Frontline. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dynagas LNG and Frontline.

Diversification Opportunities for Dynagas LNG and Frontline

-0.75

Correlation Coefficient

Dynagas LNG  Frontline

Pay attention - limited upside

The 3 months correlation between Dynagas and Frontline is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dynagas LNG Partners and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline and Dynagas LNG 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 Dynagas LNG Partners 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 Dynagas LNG i.e., Dynagas LNG and Frontline go up and down completely randomly.

Pair Corralation between Dynagas LNG and Frontline

Given the investment horizon of 90 days Dynagas LNG is expected to generate 1.0 times less return on investment than Frontline. But when comparing it to its historical volatility, Dynagas LNG Partners is 1.11 times less risky than Frontline. It trades about 0.05 of its potential returns per unit of risk. Frontline is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  887.00  in Frontline on September 21, 2024 and sell it today you would earn a total of  450.00  from holding Frontline or generate 50.73% return on investment over 90 days.

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

Dynagas LNG Partners  vs.  Frontline

Dynagas LNG Partners

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dynagas LNG Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dynagas LNG reported solid returns over the last few months and may actually be approaching a breakup point.

Frontline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontline 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.

Pair Trading with Dynagas LNG and Frontline

The main advantage of trading using opposite Dynagas LNG and Frontline positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dynagas LNG 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.

The idea behind Dynagas LNG Partners and Frontline 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.