Correlation Between Pacific Basin and BW LPG

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

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

Diversification Opportunities for Pacific Basin and BW LPG

0.79

Correlation Coefficient

Pacific Basin  BW LPG

Poor diversification

The 3 months correlation between Pacific and BW9 is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Basin Shipping and BW LPG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG Limited and Pacific Basin 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 Pacific Basin Shipping are associated (or correlated) with BW LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW LPG Limited has no effect on the direction of Pacific Basin i.e., Pacific Basin and BW LPG go up and down completely randomly.

Pair Corralation between Pacific Basin and BW LPG

Assuming the 90 days horizon Pacific Basin Shipping is expected to generate 1.38 times more return on investment than BW LPG. However, Pacific Basin is 1.38 times more volatile than BW LPG Limited. It trades about -0.35 of its potential returns per unit of risk. BW LPG Limited is currently generating about -0.5 per unit of risk. If you would invest  24.00  in Pacific Basin Shipping on September 23, 2024 and sell it today you would lose (5.00) from holding Pacific Basin Shipping or give up 20.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Pacific Basin Shipping  vs.  BW LPG Limited

Pacific Basin Shipping

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Basin Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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.

BW LPG Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 Pacific Basin and BW LPG

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

The idea behind Pacific Basin Shipping and BW LPG Limited 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 Anywhere module to track or share privately all of your investments from the convenience of any device.