Correlation Between Pacific Basin and Orient Overseas

Can any of the company-specific risk be diversified away by investing in both Pacific Basin and Orient Overseas 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 Orient Overseas 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 Orient Overseas Limited, you can compare the effects of market volatilities on Pacific Basin and Orient Overseas 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 Orient Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacific Basin and Orient Overseas.

Diversification Opportunities for Pacific Basin and Orient Overseas

-0.14

Correlation Coefficient

Pacific Basin  Orient Overseas

Good diversification

The 3 months correlation between Pacific and Orient is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Basin Shipping and Orient Overseas Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Overseas 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 Orient Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Overseas has no effect on the direction of Pacific Basin i.e., Pacific Basin and Orient Overseas go up and down completely randomly.

Pair Corralation between Pacific Basin and Orient Overseas

Assuming the 90 days horizon Pacific Basin Shipping is expected to generate 3.0 times more return on investment than Orient Overseas. However, Pacific Basin is 3.0 times more volatile than Orient Overseas Limited. It trades about 0.04 of its potential returns per unit of risk. Orient Overseas Limited is currently generating about 0.02 per unit of risk. If you would invest  425.00  in Pacific Basin Shipping on December 29, 2024 and sell it today you would earn a total of  14.00  from holding Pacific Basin Shipping or generate 3.29% return on investment over 90 days.

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

Pacific Basin Shipping  vs.  Orient Overseas Limited

Pacific Basin Shipping

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Basin Shipping are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Pacific Basin showed solid returns over the last few months and may actually be approaching a breakup point.

Orient Overseas

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Overseas Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Orient Overseas is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Pacific Basin and Orient Overseas

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

The idea behind Pacific Basin Shipping and Orient Overseas 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.