Correlation Between Western Bulk and Pacific Basin

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

Diversification Opportunities for Western Bulk and Pacific Basin

0.09

Correlation Coefficient

Western Bulk  Pacific Basin

Significant diversification

The 3 months correlation between Western and Pacific is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Western Bulk Chartering and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping 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 Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of Western Bulk i.e., Western Bulk and Pacific Basin go up and down completely randomly.

Pair Corralation between Western Bulk and Pacific Basin

Assuming the 90 days horizon Western Bulk Chartering is expected to under-perform the Pacific Basin. But the pink sheet apears to be less risky and, when comparing its historical volatility, Western Bulk Chartering is 1.27 times less risky than Pacific Basin. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Pacific Basin Shipping is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  530.00  in Pacific Basin Shipping on September 4, 2024 and sell it today you would lose (38.00) from holding Pacific Basin Shipping or give up 7.17% of portfolio value over 90 days.

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

Western Bulk Chartering  vs.  Pacific Basin Shipping

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 fragile 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.

Pacific Basin Shipping

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Basin Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Pacific Basin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Bulk and Pacific Basin

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

The idea behind Western Bulk Chartering and Pacific Basin Shipping 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.