Correlation Between Torm PLC and Frontline

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

By analyzing existing cross correlation between Torm PLC Class and Frontline, you can compare the effects of market volatilities on Torm PLC and Frontline 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 Torm PLC with a short position of Frontline. Check out your portfolio center. Please also check ongoing floating volatility patterns of Torm PLC and Frontline.

Diversification Opportunities for Torm PLC and Frontline

0.52

Correlation Coefficient

Torm PLC  Frontline

Very weak diversification

The 3 months correlation between Torm and Frontline is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Torm PLC Class and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline and Torm PLC 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 Torm PLC Class are associated (or correlated) with Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of Torm PLC i.e., Torm PLC and Frontline go up and down completely randomly.

Pair Corralation between Torm PLC and Frontline

Given the investment horizon of 90 days Torm PLC Class is expected to under-perform the Frontline. But the stock apears to be less risky and, when comparing its historical volatility, Torm PLC Class is 1.11 times less risky than Frontline. The stock trades about -0.01 of its potential returns per unit of risk. The Frontline is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,371  in Frontline on December 29, 2024 and sell it today you would earn a total of  120.00  from holding Frontline or generate 8.75% return on investment over 90 days.

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

Torm PLC Class  vs.  Frontline

Torm PLC Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Torm PLC Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Torm PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Frontline

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Frontline are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Frontline displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Torm PLC and Frontline

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

The idea behind Torm PLC Class and Frontline 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.