Correlation Between EuroDry and Euroseas
Can any of the company-specific risk be diversified away by investing in both EuroDry and Euroseas 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 EuroDry and Euroseas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EuroDry and Euroseas, you can compare the effects of market volatilities on EuroDry and Euroseas 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 EuroDry with a short position of Euroseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of EuroDry and Euroseas.
Diversification Opportunities for EuroDry and Euroseas
Poor diversification
The 3 months correlation between EuroDry and Euroseas is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding EuroDry and Euroseas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euroseas and EuroDry 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 EuroDry are associated (or correlated) with Euroseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Euroseas has no effect on the direction of EuroDry i.e., EuroDry and Euroseas go up and down completely randomly.
Pair Corralation between EuroDry and Euroseas
Given the investment horizon of 90 days EuroDry is expected to under-perform the Euroseas. But the stock apears to be less risky and, when comparing its historical volatility, EuroDry is 1.0 times less risky than Euroseas. The stock trades about -0.56 of its potential returns per unit of risk. The Euroseas is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 4,186 in Euroseas on August 24, 2024 and sell it today you would lose (241.00) from holding Euroseas or give up 5.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EuroDry vs. Euroseas
Performance |
| Timeline |
| EuroDry |
| Euroseas |
EuroDry and Euroseas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EuroDry and Euroseas
The main advantage of trading using opposite EuroDry and Euroseas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EuroDry position performs unexpectedly, Euroseas 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 Euroseas will offset losses from the drop in Euroseas' long position.The idea behind EuroDry and Euroseas 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.| Euroseas vs. Pyxis Tankers | Euroseas vs. Pacific Basin Shipping | Euroseas vs. dAmico International Shipping | Euroseas vs. Danaos |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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