Correlation Between Torm PLC and Teekay Tankers

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

Diversification Opportunities for Torm PLC and Teekay Tankers

0.88

Correlation Coefficient

Torm PLC  Teekay Tankers

Very poor diversification

The 3 months correlation between Torm and Teekay is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Torm PLC Class and Teekay Tankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teekay Tankers 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 Teekay Tankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teekay Tankers has no effect on the direction of Torm PLC i.e., Torm PLC and Teekay Tankers go up and down completely randomly.

Pair Corralation between Torm PLC and Teekay Tankers

Given the investment horizon of 90 days Torm PLC Class is expected to under-perform the Teekay Tankers. But the stock apears to be less risky and, when comparing its historical volatility, Torm PLC Class is 1.15 times less risky than Teekay Tankers. The stock trades about -0.05 of its potential returns per unit of risk. The Teekay Tankers is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,950  in Teekay Tankers on November 28, 2024 and sell it today you would earn a total of  33.00  from holding Teekay Tankers or generate 0.84% return on investment over 90 days.

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

Torm PLC Class  vs.  Teekay Tankers

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.

Teekay Tankers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teekay Tankers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Teekay Tankers is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Torm PLC and Teekay Tankers

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

The idea behind Torm PLC Class and Teekay Tankers 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.