Correlation Between REC Silicon and BW LPG

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

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

Diversification Opportunities for REC Silicon and BW LPG

0.72

Correlation Coefficient

REC Silicon  BW LPG

Poor diversification

The 3 months correlation between REC and BWLPG is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding REC Silicon ASA and BW LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG and REC Silicon 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 REC Silicon ASA 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 has no effect on the direction of REC Silicon i.e., REC Silicon and BW LPG go up and down completely randomly.

Pair Corralation between REC Silicon and BW LPG

Assuming the 90 days trading horizon REC Silicon ASA is expected to under-perform the BW LPG. In addition to that, REC Silicon is 5.24 times more volatile than BW LPG. It trades about -0.15 of its total potential returns per unit of risk. BW LPG is currently generating about -0.11 per unit of volatility. If you would invest  15,756  in BW LPG on October 9, 2024 and sell it today you would lose (2,576) from holding BW LPG or give up 16.35% of portfolio value over 90 days.

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

REC Silicon ASA  vs.  BW LPG

REC Silicon ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days REC Silicon ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

BW LPG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with REC Silicon and BW LPG

The main advantage of trading using opposite REC Silicon and BW LPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REC Silicon 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 REC Silicon ASA and BW 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.