Correlation Between Golar LNG and Frontline

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

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

Diversification Opportunities for Golar LNG and Frontline

-0.64

Correlation Coefficient

Golar LNG  Frontline

Excellent diversification

The 3 months correlation between Golar and Frontline is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Golar LNG Limited and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline and Golar 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 Golar LNG Limited are associated (or correlated) with Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of Golar LNG i.e., Golar LNG and Frontline go up and down completely randomly.

Pair Corralation between Golar LNG and Frontline

Given the investment horizon of 90 days Golar LNG Limited is expected to generate 0.79 times more return on investment than Frontline. However, Golar LNG Limited is 1.27 times less risky than Frontline. It trades about 0.1 of its potential returns per unit of risk. Frontline is currently generating about 0.02 per unit of risk. If you would invest  1,975  in Golar LNG Limited on October 5, 2024 and sell it today you would earn a total of  2,409  from holding Golar LNG Limited or generate 121.97% return on investment over 90 days.

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

Golar LNG Limited  vs.  Frontline

Golar LNG Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Golar LNG Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Golar LNG reported solid returns over the last few months and may actually be approaching a breakup point.

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 February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Golar LNG and Frontline

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

The idea behind Golar LNG Limited and Frontline 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.