Correlation Between Imperial Petroleum and Scorpio Tankers

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

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

Diversification Opportunities for Imperial Petroleum and Scorpio Tankers

-0.72

Correlation Coefficient

Imperial Petroleum  Scorpio Tankers

Pay attention - limited upside

The 3 months correlation between Imperial and Scorpio is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Petroleum Preferred and Scorpio Tankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scorpio Tankers and Imperial Petroleum 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 Imperial Petroleum Preferred 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 Imperial Petroleum i.e., Imperial Petroleum and Scorpio Tankers go up and down completely randomly.

Pair Corralation between Imperial Petroleum and Scorpio Tankers

Assuming the 90 days horizon Imperial Petroleum Preferred is expected to under-perform the Scorpio Tankers. But the preferred stock apears to be less risky and, when comparing its historical volatility, Imperial Petroleum Preferred is 2.11 times less risky than Scorpio Tankers. The preferred stock trades about -0.13 of its potential returns per unit of risk. The Scorpio Tankers is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,019  in Scorpio Tankers on October 2, 2024 and sell it today you would lose (50.00) from holding Scorpio Tankers or give up 1.0% of portfolio value over 90 days.

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

Imperial Petroleum Preferred  vs.  Scorpio Tankers

Imperial Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Petroleum Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Imperial Petroleum is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Scorpio Tankers

Risk-Adjusted Performance

0 of 100

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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Imperial Petroleum and Scorpio Tankers

The main advantage of trading using opposite Imperial Petroleum and Scorpio Tankers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Petroleum 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 Imperial Petroleum Preferred 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.