Correlation Between EuroDry and Kirby
Can any of the company-specific risk be diversified away by investing in both EuroDry and Kirby 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 Kirby into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EuroDry and Kirby, you can compare the effects of market volatilities on EuroDry and Kirby 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 Kirby. Check out your portfolio center. Please also check ongoing floating volatility patterns of EuroDry and Kirby.
Diversification Opportunities for EuroDry and Kirby
Very weak diversification
The 3 months correlation between EuroDry and Kirby is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding EuroDry and Kirby in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kirby 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 Kirby. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kirby has no effect on the direction of EuroDry i.e., EuroDry and Kirby go up and down completely randomly.
Pair Corralation between EuroDry and Kirby
Given the investment horizon of 90 days EuroDry is expected to under-perform the Kirby. In addition to that, EuroDry is 1.7 times more volatile than Kirby. It trades about -0.11 of its total potential returns per unit of risk. Kirby is currently generating about -0.16 per unit of volatility. If you would invest 12,338 in Kirby on November 3, 2024 and sell it today you would lose (1,423) from holding Kirby or give up 11.53% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
EuroDry vs. Kirby
Performance |
| Timeline |
| EuroDry |
| Kirby |
EuroDry and Kirby Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EuroDry and Kirby
The main advantage of trading using opposite EuroDry and Kirby positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EuroDry position performs unexpectedly, Kirby 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 Kirby will offset losses from the drop in Kirby's long position.The idea behind EuroDry and Kirby 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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