Which is the existing pattern in the relationship between tankers and dry bulk carriers? In its latest weekly report, shipbroker Allied Shipbroking noted that “the extent to which the dry bulk and tanker markets are correlated has always been a topic of hot dispute and significant interest in the market, with mixed feelings and contrasting views expressed by many portfolio managers and shipping equity analysts. With some sort of certainty, we can argue that the relationship between these markets is complicated and constantly shifting, showing large variations across different market conditions and regimes. At the same time though, it can’t be disputed that at times we can detect partially correlated activity, which can make further analysis, regarding true performance levels and risk parity metrics, even more complicated”.

According to Allied’s Quantitative Analyst, Mr. Thomas Chasapis, “for this commentary, we are using the Relative Strength Index (RSI) technical indicator, with the sole purpose to obtain a (theoretically) clearer view in terms of asset price momentum. In order to do so, we have estimated the weighted average RSI across all the main size segments for both the dry bulk and tanker sectors and have extended the analysis since the onset of 2020. Through an initial view, we notice that asset prices indicate many similarities in respect to the overall trend. Similar momentum can be in part translated to correlation, and correlation means less diversification. So, for many who measure diversification within the shipping markets only in terms of freight earnings and cash flow analysis, this angle represents a different aspect of portfolio management and risk management approach”.

Mr. Chasapis added that “the scope of the above interpretation is not to debate whether these markets are or are not correlated, but to understand the complexities and the multivariate view needed to better assess risk within shipping markets. For some time now, we have experienced relatively strong momentum in tanker assets, where the actual intrinsic value, given the current freight market regime, can hardly be enough to explain the sort of behavior we are seeing. Does this mean that the idiosyncratic risk for this whole asset class is lower? Maybe we have already mispriced the endemic risk (and domino effect) involved in the case that the freight market fails to follow accordingly”, he concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide