Correlation Between Western Bulk and Orient Overseas

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

Diversification Opportunities for Western Bulk and Orient Overseas

0.22

Correlation Coefficient

Western Bulk  Orient Overseas

Modest diversification

The 3 months correlation between Western and Orient is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Western Bulk Chartering and Orient Overseas Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Overseas 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 Orient Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Overseas has no effect on the direction of Western Bulk i.e., Western Bulk and Orient Overseas go up and down completely randomly.

Pair Corralation between Western Bulk and Orient Overseas

Assuming the 90 days horizon Western Bulk Chartering is expected to under-perform the Orient Overseas. In addition to that, Western Bulk is 2.74 times more volatile than Orient Overseas Limited. It trades about -0.16 of its total potential returns per unit of risk. Orient Overseas Limited is currently generating about -0.03 per unit of volatility. If you would invest  1,336  in Orient Overseas Limited on September 3, 2024 and sell it today you would lose (39.00) from holding Orient Overseas Limited or give up 2.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Western Bulk Chartering  vs.  Orient Overseas 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Orient Overseas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orient Overseas Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Orient Overseas 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 Orient Overseas

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

The idea behind Western Bulk Chartering and Orient Overseas 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.