Correlation Between FLEX LNG and BW LPG

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

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

Diversification Opportunities for FLEX LNG and BW LPG

0.83

Correlation Coefficient

FLEX LNG  BW LPG

Very poor diversification

The 3 months correlation between FLEX and BWLPG is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding FLEX LNG and BW LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG and FLEX 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 FLEX LNG 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 has no effect on the direction of FLEX LNG i.e., FLEX LNG and BW LPG go up and down completely randomly.

Pair Corralation between FLEX LNG and BW LPG

Assuming the 90 days trading horizon FLEX LNG is expected to generate 0.66 times more return on investment than BW LPG. However, FLEX LNG is 1.51 times less risky than BW LPG. It trades about 0.01 of its potential returns per unit of risk. BW LPG is currently generating about -0.01 per unit of risk. If you would invest  23,953  in FLEX LNG on December 30, 2024 and sell it today you would lose (93.00) from holding FLEX LNG or give up 0.39% of portfolio value over 90 days.

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

FLEX LNG  vs.  BW LPG

FLEX LNG

Risk-Adjusted Performance

Very Weak

Over the last 90 days FLEX LNG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, FLEX LNG is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

BW LPG

Risk-Adjusted Performance

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 very healthy basic indicators, BW LPG is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with FLEX LNG and BW LPG

The main advantage of trading using opposite FLEX LNG and BW LPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FLEX LNG 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 FLEX LNG and BW LPG 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.