Correlation Between Golden Ocean and Advanced Drainage
Can any of the company-specific risk be diversified away by investing in both Golden Ocean and Advanced Drainage 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 Golden Ocean and Advanced Drainage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Golden Ocean Group and Advanced Drainage Systems, you can compare the effects of market volatilities on Golden Ocean and Advanced Drainage 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 Golden Ocean with a short position of Advanced Drainage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Golden Ocean and Advanced Drainage.
Diversification Opportunities for Golden Ocean and Advanced Drainage
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Golden and Advanced is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Golden Ocean Group and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and Golden Ocean 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 Golden Ocean Group are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Golden Ocean i.e., Golden Ocean and Advanced Drainage go up and down completely randomly.
Pair Corralation between Golden Ocean and Advanced Drainage
Given the investment horizon of 90 days Golden Ocean Group is expected to generate 1.1 times more return on investment than Advanced Drainage. However, Golden Ocean is 1.1 times more volatile than Advanced Drainage Systems. It trades about 0.22 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.16 per unit of risk. If you would invest 1,266 in Golden Ocean Group on January 25, 2024 and sell it today you would earn a total of 93.00 from holding Golden Ocean Group or generate 7.35% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Golden Ocean Group vs. Advanced Drainage Systems
Performance |
Timeline |
Golden Ocean Group |
Advanced Drainage Systems |
Golden Ocean and Advanced Drainage Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Golden Ocean and Advanced Drainage
The main advantage of trading using opposite Golden Ocean and Advanced Drainage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Golden Ocean position performs unexpectedly, Advanced Drainage 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 Advanced Drainage will offset losses from the drop in Advanced Drainage's long position.The idea behind Golden Ocean Group and Advanced Drainage Systems 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.Advanced Drainage vs. Lennox International | Advanced Drainage vs. Fortune Brands Innovations | Advanced Drainage vs. Trane Technologies plc | Advanced Drainage vs. Johnson Controls International |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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