Correlation Between Torm PLC and Permian Basin

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

Diversification Opportunities for Torm PLC and Permian Basin

-0.03

Correlation Coefficient

Torm PLC  Permian Basin

Good diversification

The 3 months correlation between Torm and Permian is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Torm PLC Class and Permian Basin Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Basin Royalty 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 Permian Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Basin Royalty has no effect on the direction of Torm PLC i.e., Torm PLC and Permian Basin go up and down completely randomly.

Pair Corralation between Torm PLC and Permian Basin

Given the investment horizon of 90 days Torm PLC Class is expected to generate 0.69 times more return on investment than Permian Basin. However, Torm PLC Class is 1.44 times less risky than Permian Basin. It trades about -0.01 of its potential returns per unit of risk. Permian Basin Royalty is currently generating about -0.11 per unit of risk. If you would invest  3,481  in Torm PLC Class on February 3, 2024 and sell it today you would lose (25.00) from holding Torm PLC Class or give up 0.72% of portfolio value over 90 days.

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

Torm PLC Class  vs.  Permian Basin Royalty

Torm PLC Class

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Torm PLC Class are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Torm PLC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Permian Basin Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permian Basin Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Torm PLC and Permian Basin

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

The idea behind Torm PLC Class and Permian Basin Royalty 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.