Correlation Between Golar LNG and Plains All

Can any of the company-specific risk be diversified away by investing in both Golar LNG and Plains All 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 Golar LNG and Plains All into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Golar LNG Limited and Plains All American, you can compare the effects of market volatilities on Golar LNG and Plains All 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 Golar LNG with a short position of Plains All. Check out your portfolio center. Please also check ongoing floating volatility patterns of Golar LNG and Plains All.

Diversification Opportunities for Golar LNG and Plains All

0.84

Correlation Coefficient

Golar LNG  Plains All

Very poor diversification

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

Pair Corralation between Golar LNG and Plains All

Given the investment horizon of 90 days Golar LNG Limited is expected to generate 0.8 times more return on investment than Plains All. However, Golar LNG Limited is 1.25 times less risky than Plains All. It trades about 0.18 of its potential returns per unit of risk. Plains All American is currently generating about 0.04 per unit of risk. If you would invest  2,413  in Golar LNG Limited on January 30, 2024 and sell it today you would earn a total of  97.00  from holding Golar LNG Limited or generate 4.02% return on investment over 90 days.

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

Golar LNG Limited  vs.  Plains All American

Golar LNG Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Golar LNG Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Golar LNG reported solid returns over the last few months and may actually be approaching a breakup point.

Plains All American

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Plains All American are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Plains All may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Golar LNG and Plains All

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

The idea behind Golar LNG Limited and Plains All American 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.