Correlation Between Western Bulk and BW LPG

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

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

Diversification Opportunities for Western Bulk and BW LPG

-0.86

Correlation Coefficient

Western Bulk  BW LPG

Pay attention - limited upside

The 3 months correlation between Western and BWLLF is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Western Bulk Chartering and BW LPG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG Limited and Western Bulk 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 Western Bulk Chartering 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 Limited has no effect on the direction of Western Bulk i.e., Western Bulk and BW LPG go up and down completely randomly.

Pair Corralation between Western Bulk and BW LPG

Assuming the 90 days horizon Western Bulk is expected to generate 21.84 times less return on investment than BW LPG. But when comparing it to its historical volatility, Western Bulk Chartering is 1.11 times less risky than BW LPG. It trades about 0.0 of its potential returns per unit of risk. BW LPG Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  528.00  in BW LPG Limited on October 9, 2024 and sell it today you would earn a total of  1,313  from holding BW LPG Limited or generate 248.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	72.12%
Values	Daily Returns

Western Bulk Chartering  vs.  BW LPG Limited

Western Bulk Chartering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Bulk Chartering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

BW LPG Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, BW LPG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Western Bulk and BW LPG

The main advantage of trading using opposite Western Bulk and BW LPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Bulk 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 Western Bulk Chartering and BW LPG Limited 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.