Correlation Between Nordic American and Cheniere Energy

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

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

Diversification Opportunities for Nordic American and Cheniere Energy

0.59

Correlation Coefficient

Nordic American  Cheniere Energy

Very weak diversification

The 3 months correlation between Nordic and Cheniere is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Nordic American Tankers and Cheniere Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy and Nordic American 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 Nordic American Tankers are associated (or correlated) with Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy has no effect on the direction of Nordic American i.e., Nordic American and Cheniere Energy go up and down completely randomly.

Pair Corralation between Nordic American and Cheniere Energy

Considering the 90-day investment horizon Nordic American is expected to generate 1.11 times less return on investment than Cheniere Energy. But when comparing it to its historical volatility, Nordic American Tankers is 1.01 times less risky than Cheniere Energy. It trades about 0.05 of its potential returns per unit of risk. Cheniere Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  21,307  in Cheniere Energy on December 28, 2024 and sell it today you would earn a total of  1,316  from holding Cheniere Energy or generate 6.18% return on investment over 90 days.

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

Nordic American Tankers  vs.  Cheniere Energy

Nordic American Tankers

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic American Tankers are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Nordic American may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cheniere Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cheniere Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Nordic American and Cheniere Energy

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

The idea behind Nordic American Tankers and Cheniere Energy 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.