Correlation Between Permian Basin and Dorian LPG

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

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

Diversification Opportunities for Permian Basin and Dorian LPG

0.69

Correlation Coefficient

Permian Basin  Dorian LPG

Poor diversification

The 3 months correlation between Permian and Dorian is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Permian Basin Royalty and Dorian LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorian LPG and Permian 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 Permian Basin Royalty are associated (or correlated) with Dorian LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorian LPG has no effect on the direction of Permian Basin i.e., Permian Basin and Dorian LPG go up and down completely randomly.

Pair Corralation between Permian Basin and Dorian LPG

Considering the 90-day investment horizon Permian Basin Royalty is expected to under-perform the Dorian LPG. But the stock apears to be less risky and, when comparing its historical volatility, Permian Basin Royalty is 1.25 times less risky than Dorian LPG. The stock trades about -0.06 of its potential returns per unit of risk. The Dorian LPG is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,334  in Dorian LPG on December 28, 2024 and sell it today you would lose (84.00) from holding Dorian LPG or give up 3.6% of portfolio value over 90 days.

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

Permian Basin Royalty  vs.  Dorian LPG

Permian Basin Royalty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Permian Basin Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Dorian LPG

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dorian LPG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Dorian LPG is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Permian Basin and Dorian LPG

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

The idea behind Permian Basin Royalty and Dorian LPG 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.