Correlation Between Pacific Basin and SITC International

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

Diversification Opportunities for Pacific Basin and SITC International

-0.38

Correlation Coefficient

Pacific Basin  SITC International

Very good diversification

The 3 months correlation between Pacific and SITC is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Basin Shipping and SITC International Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SITC International 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 SITC International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SITC International has no effect on the direction of Pacific Basin i.e., Pacific Basin and SITC International go up and down completely randomly.

Pair Corralation between Pacific Basin and SITC International

Assuming the 90 days horizon Pacific Basin Shipping is expected to under-perform the SITC International. In addition to that, Pacific Basin is 1.51 times more volatile than SITC International Holdings. It trades about -0.01 of its total potential returns per unit of risk. SITC International Holdings is currently generating about 0.06 per unit of volatility. If you would invest  219.00  in SITC International Holdings on September 3, 2024 and sell it today you would earn a total of  19.00  from holding SITC International Holdings or generate 8.68% 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.  SITC International Holdings

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. In spite of fairly strong fundamental drivers, Pacific Basin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SITC International

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Pacific Basin and SITC International

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

The idea behind Pacific Basin Shipping and SITC International Holdings 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.