Correlation Between Small Cap and Crown LNG

Can any of the company-specific risk be diversified away by investing in both Small Cap and Crown LNG 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 Small Cap and Crown LNG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Premium and Crown LNG Holdings, you can compare the effects of market volatilities on Small Cap and Crown LNG 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 Small Cap with a short position of Crown LNG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Crown LNG.

Diversification Opportunities for Small Cap and Crown LNG

0.22

Correlation Coefficient

Small Cap  Crown LNG

Modest diversification

The 3 months correlation between Small and Crown is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Crown LNG Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crown LNG Holdings and Small Cap 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 Small Cap Premium are associated (or correlated) with Crown LNG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crown LNG Holdings has no effect on the direction of Small Cap i.e., Small Cap and Crown LNG go up and down completely randomly.

Pair Corralation between Small Cap and Crown LNG

Considering the 90-day investment horizon Small Cap Premium is expected to under-perform the Crown LNG. But the stock apears to be less risky and, when comparing its historical volatility, Small Cap Premium is 30.03 times less risky than Crown LNG. The stock trades about -0.02 of its potential returns per unit of risk. The Crown LNG Holdings is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Crown LNG Holdings on October 10, 2024 and sell it today you would earn a total of  28.00  from holding Crown LNG Holdings or generate 90.32% return on investment over 90 days.

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

Small Cap Premium  vs.  Crown LNG Holdings

Small Cap Premium

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Crown LNG Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crown LNG Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental drivers, Crown LNG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Crown LNG

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

The idea behind Small Cap Premium and Crown LNG 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.