Correlation Between Frontline and Scorpio Tankers

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

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

Diversification Opportunities for Frontline and Scorpio Tankers

0.25

Correlation Coefficient

Frontline  Scorpio Tankers

Modest diversification

The 3 months correlation between Frontline and Scorpio is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Scorpio Tankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scorpio Tankers 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 Scorpio Tankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scorpio Tankers has no effect on the direction of Frontline i.e., Frontline and Scorpio Tankers go up and down completely randomly.

Pair Corralation between Frontline and Scorpio Tankers

Considering the 90-day investment horizon Frontline is expected to generate 1.3 times more return on investment than Scorpio Tankers. However, Frontline is 1.3 times more volatile than Scorpio Tankers. It trades about 0.06 of its potential returns per unit of risk. Scorpio Tankers is currently generating about -0.12 per unit of risk. If you would invest  1,371  in Frontline on December 30, 2024 and sell it today you would earn a total of  126.00  from holding Frontline or generate 9.19% return on investment over 90 days.

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

Frontline  vs.  Scorpio Tankers

Frontline

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Frontline are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Frontline displayed solid returns over the last few months and may actually be approaching a breakup point.

Scorpio Tankers

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Frontline and Scorpio Tankers

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

The idea behind Frontline and Scorpio Tankers 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.