Correlation Between Torm PLC and Dorian LPG

Can any of the company-specific risk be diversified away by investing in both Torm PLC and Dorian 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 Torm PLC and Dorian LPG 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 Dorian LPG, you can compare the effects of market volatilities on Torm PLC and Dorian 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 Torm PLC with a short position of Dorian LPG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Torm PLC and Dorian LPG.

Diversification Opportunities for Torm PLC and Dorian LPG

0.85

Correlation Coefficient

Torm PLC  Dorian LPG

Very poor diversification

The 3 months correlation between Torm and Dorian is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Torm PLC Class and Dorian LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorian LPG 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 Dorian LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorian LPG has no effect on the direction of Torm PLC i.e., Torm PLC and Dorian LPG go up and down completely randomly.

Pair Corralation between Torm PLC and Dorian LPG

Given the investment horizon of 90 days Torm PLC Class is expected to generate 0.69 times more return on investment than Dorian LPG. However, Torm PLC Class is 1.46 times less risky than Dorian LPG. It trades about -0.04 of its potential returns per unit of risk. Dorian LPG is currently generating about -0.22 per unit of risk. If you would invest  1,923  in Torm PLC Class on November 28, 2024 and sell it today you would lose (33.00) from holding Torm PLC Class or give up 1.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Torm PLC Class  vs.  Dorian LPG

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 latest weak performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Dorian LPG

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Torm PLC and Dorian LPG

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

The idea behind Torm PLC Class and Dorian 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.