Correlation Between EuroDry and BW LPG

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

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

Diversification Opportunities for EuroDry and BW LPG

0.11

Correlation Coefficient

EuroDry  BW LPG

Average diversification

The 3 months correlation between EuroDry and BWLP is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding EuroDry and BW LPG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG Limited and EuroDry 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 EuroDry are associated (or correlated) with BW LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW LPG Limited has no effect on the direction of EuroDry i.e., EuroDry and BW LPG go up and down completely randomly.

Pair Corralation between EuroDry and BW LPG

Given the investment horizon of 90 days EuroDry is expected to generate 10.21 times less return on investment than BW LPG. But when comparing it to its historical volatility, EuroDry is 1.22 times less risky than BW LPG. It trades about 0.01 of its potential returns per unit of risk. BW LPG Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,062  in BW LPG Limited on December 29, 2024 and sell it today you would earn a total of  60.00  from holding BW LPG Limited or generate 5.65% return on investment over 90 days.

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

EuroDry  vs.  BW LPG Limited

EuroDry

Risk-Adjusted Performance

Very Weak

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

BW LPG Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BW LPG Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady essential indicators, BW LPG may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with EuroDry and BW LPG

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

The idea behind EuroDry and BW LPG Limited 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .