Correlation Between Stolt Nielsen and Pacific Basin

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

By analyzing existing cross correlation between Stolt Nielsen Limited and Pacific Basin Shipping, you can compare the effects of market volatilities on Stolt Nielsen and Pacific Basin 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 Stolt Nielsen with a short position of Pacific Basin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stolt Nielsen and Pacific Basin.

Diversification Opportunities for Stolt Nielsen and Pacific Basin

0.37

Correlation Coefficient

Stolt Nielsen  Pacific Basin

Weak diversification

The 3 months correlation between Stolt and Pacific is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Stolt Nielsen Limited and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping and Stolt Nielsen 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 Stolt Nielsen Limited are associated (or correlated) with Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of Stolt Nielsen i.e., Stolt Nielsen and Pacific Basin go up and down completely randomly.

Pair Corralation between Stolt Nielsen and Pacific Basin

Assuming the 90 days horizon Stolt Nielsen Limited is expected to generate 0.87 times more return on investment than Pacific Basin. However, Stolt Nielsen Limited is 1.15 times less risky than Pacific Basin. It trades about -0.03 of its potential returns per unit of risk. Pacific Basin Shipping is currently generating about -0.07 per unit of risk. If you would invest  3,014  in Stolt Nielsen Limited on October 25, 2024 and sell it today you would lose (419.00) from holding Stolt Nielsen Limited or give up 13.9% of portfolio value over 90 days.

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

Stolt Nielsen Limited  vs.  Pacific Basin Shipping

Stolt Nielsen Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stolt Nielsen Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 weak performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Stolt Nielsen and Pacific Basin

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

The idea behind Stolt Nielsen Limited and Pacific Basin Shipping 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.