Correlation Between Teekay Tankers and Navigator Holdings

Can any of the company-specific risk be diversified away by investing in both Teekay Tankers and Navigator 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 Teekay Tankers and Navigator Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Teekay Tankers and Navigator Holdings, you can compare the effects of market volatilities on Teekay Tankers and Navigator 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 Teekay Tankers with a short position of Navigator Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teekay Tankers and Navigator Holdings.

Diversification Opportunities for Teekay Tankers and Navigator Holdings

0.8

Correlation Coefficient

Teekay Tankers  Navigator Holdings

Very poor diversification

The 3 months correlation between Teekay and Navigator is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Teekay Tankers and Navigator Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Navigator Holdings and Teekay Tankers 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 Teekay Tankers are associated (or correlated) with Navigator Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Navigator Holdings has no effect on the direction of Teekay Tankers i.e., Teekay Tankers and Navigator Holdings go up and down completely randomly.

Pair Corralation between Teekay Tankers and Navigator Holdings

Considering the 90-day investment horizon Teekay Tankers is expected to generate 2.2 times more return on investment than Navigator Holdings. However, Teekay Tankers is 2.2 times more volatile than Navigator Holdings. It trades about 0.33 of its potential returns per unit of risk. Navigator Holdings is currently generating about 0.33 per unit of risk. If you would invest  5,768  in Teekay Tankers on February 12, 2024 and sell it today you would earn a total of  1,106  from holding Teekay Tankers or generate 19.17% return on investment over 90 days.

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

Teekay Tankers  vs.  Navigator Holdings

Teekay Tankers

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Teekay Tankers are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Teekay Tankers disclosed solid returns over the last few months and may actually be approaching a breakup point.

Navigator Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Navigator Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Navigator Holdings may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Teekay Tankers and Navigator Holdings

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

The idea behind Teekay Tankers and Navigator 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.