Correlation Between Torm PLC and DHT Holdings

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

Diversification Opportunities for Torm PLC and DHT Holdings

0.84

Correlation Coefficient

Torm PLC  DHT Holdings

Very poor diversification

The 3 months correlation between Torm and DHT is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Torm PLC Class and DHT Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DHT Holdings 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 DHT Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DHT Holdings has no effect on the direction of Torm PLC i.e., Torm PLC and DHT Holdings go up and down completely randomly.

Pair Corralation between Torm PLC and DHT Holdings

Given the investment horizon of 90 days Torm PLC Class is expected to under-perform the DHT Holdings. In addition to that, Torm PLC is 1.01 times more volatile than DHT Holdings. It trades about -0.2 of its total potential returns per unit of risk. DHT Holdings is currently generating about -0.07 per unit of volatility. If you would invest  1,117  in DHT Holdings on September 22, 2024 and sell it today you would lose (222.00) from holding DHT Holdings or give up 19.87% of portfolio value over 90 days.

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

Torm PLC Class  vs.  DHT Holdings

Torm PLC Class

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

DHT Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DHT Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Torm PLC and DHT Holdings

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

The idea behind Torm PLC Class and DHT Holdings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.