Correlation Between First Steamship and Far Eastern

Can any of the company-specific risk be diversified away by investing in both First Steamship and Far Eastern 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 First Steamship and Far Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Steamship Co and Far Eastern Department, you can compare the effects of market volatilities on First Steamship and Far Eastern 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 First Steamship with a short position of Far Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Steamship and Far Eastern.

Diversification Opportunities for First Steamship and Far Eastern

0.86

Correlation Coefficient

First Steamship  Far Eastern

Very poor diversification

The 3 months correlation between First and Far is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Steamship Co and Far Eastern Department in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern Department and First Steamship 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 First Steamship Co are associated (or correlated) with Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern Department has no effect on the direction of First Steamship i.e., First Steamship and Far Eastern go up and down completely randomly.

Pair Corralation between First Steamship and Far Eastern

Assuming the 90 days trading horizon First Steamship Co is expected to generate 1.06 times more return on investment than Far Eastern. However, First Steamship is 1.06 times more volatile than Far Eastern Department. It trades about 0.05 of its potential returns per unit of risk. Far Eastern Department is currently generating about -0.01 per unit of risk. If you would invest  763.00  in First Steamship Co on December 4, 2024 and sell it today you would earn a total of  29.00  from holding First Steamship Co or generate 3.8% return on investment over 90 days.

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

First Steamship Co  vs.  Far Eastern Department

First Steamship

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Steamship Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Steamship is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Far Eastern Department

Risk-Adjusted Performance

Very Weak

Over the last 90 days Far Eastern Department has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Far Eastern is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Steamship and Far Eastern

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

The idea behind First Steamship Co and Far Eastern Department 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 Anywhere module to track or share privately all of your investments from the convenience of any device.