Correlation Between American Shipping and EuroDry

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

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

Diversification Opportunities for American Shipping and EuroDry

0.82

Correlation Coefficient

American Shipping  EuroDry

Very poor diversification

The 3 months correlation between American and EuroDry is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding American Shipping and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry and American Shipping 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 American Shipping 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 American Shipping i.e., American Shipping and EuroDry go up and down completely randomly.

Pair Corralation between American Shipping and EuroDry

Assuming the 90 days horizon American Shipping is expected to generate 27.15 times more return on investment than EuroDry. However, American Shipping is 27.15 times more volatile than EuroDry. It trades about 0.17 of its potential returns per unit of risk. EuroDry is currently generating about -0.03 per unit of risk. If you would invest  143.00  in American Shipping on October 11, 2024 and sell it today you would earn a total of  82.00  from holding American Shipping or generate 57.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	77.17%
Values	Daily Returns

American Shipping  vs.  EuroDry

American Shipping

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward-looking indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

EuroDry

Risk-Adjusted Performance

0 of 100

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 unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Shipping and EuroDry

The main advantage of trading using opposite American Shipping and EuroDry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Shipping 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 American Shipping 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.