Correlation Between Algoma Central and EuroDry

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

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

Diversification Opportunities for Algoma Central and EuroDry

-0.27

Correlation Coefficient

Algoma Central  EuroDry

Very good diversification

The 3 months correlation between Algoma and EuroDry is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Central and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry and Algoma Central 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 Algoma Central are associated (or correlated) with EuroDry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EuroDry has no effect on the direction of Algoma Central i.e., Algoma Central and EuroDry go up and down completely randomly.

Pair Corralation between Algoma Central and EuroDry

Assuming the 90 days horizon Algoma Central is expected to generate 0.52 times more return on investment than EuroDry. However, Algoma Central is 1.9 times less risky than EuroDry. It trades about 0.09 of its potential returns per unit of risk. EuroDry is currently generating about -0.02 per unit of risk. If you would invest  999.00  in Algoma Central on December 26, 2024 and sell it today you would earn a total of  68.00  from holding Algoma Central or generate 6.81% return on investment over 90 days.

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

Algoma Central  vs.  EuroDry

Algoma Central

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Central are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, Algoma Central may actually be approaching a critical reversion point that can send shares even higher in April 2025.

EuroDry

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Algoma Central and EuroDry

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

The idea behind Algoma Central and EuroDry 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.