Correlation Between Frontline and Dorian LPG

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

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

Diversification Opportunities for Frontline and Dorian LPG

0.94

Correlation Coefficient

Frontline  Dorian LPG

Almost no diversification

The 3 months correlation between Frontline and Dorian is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Dorian LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorian LPG and Frontline 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 Frontline are associated (or correlated) with Dorian LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorian LPG has no effect on the direction of Frontline i.e., Frontline and Dorian LPG go up and down completely randomly.

Pair Corralation between Frontline and Dorian LPG

Considering the 90-day investment horizon Frontline is expected to generate 1.17 times less return on investment than Dorian LPG. In addition to that, Frontline is 1.09 times more volatile than Dorian LPG. It trades about 0.04 of its total potential returns per unit of risk. Dorian LPG is currently generating about 0.05 per unit of volatility. If you would invest  1,444  in Dorian LPG on September 20, 2024 and sell it today you would earn a total of  888.00  from holding Dorian LPG or generate 61.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

Frontline  vs.  Dorian LPG

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.

Dorian LPG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dorian LPG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Frontline and Dorian LPG

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

The idea behind Frontline and Dorian 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.