Correlation Between Frontline and Marine Petroleum

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

By analyzing existing cross correlation between Frontline and Marine Petroleum Trust, you can compare the effects of market volatilities on Frontline and Marine Petroleum 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 Marine Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontline and Marine Petroleum.

Diversification Opportunities for Frontline and Marine Petroleum

0.53

Correlation Coefficient

Frontline  Marine Petroleum

Very weak diversification

The 3 months correlation between Frontline and Marine is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Marine Petroleum Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marine Petroleum Trust 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 Marine Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marine Petroleum Trust has no effect on the direction of Frontline i.e., Frontline and Marine Petroleum go up and down completely randomly.

Pair Corralation between Frontline and Marine Petroleum

Considering the 90-day investment horizon Frontline is expected to under-perform the Marine Petroleum. In addition to that, Frontline is 1.43 times more volatile than Marine Petroleum Trust. It trades about -0.22 of its total potential returns per unit of risk. Marine Petroleum Trust is currently generating about 0.0 per unit of volatility. If you would invest  387.00  in Marine Petroleum Trust on September 16, 2024 and sell it today you would lose (6.00) from holding Marine Petroleum Trust or give up 1.55% of portfolio value over 90 days.

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

Frontline  vs.  Marine Petroleum Trust

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.

Marine Petroleum Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marine Petroleum Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Marine Petroleum is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Frontline and Marine Petroleum

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

The idea behind Frontline and Marine Petroleum Trust 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.