Correlation Between American Shipping and Pacific Basin

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

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

Diversification Opportunities for American Shipping and Pacific Basin

-0.62

Correlation Coefficient

American Shipping  Pacific Basin

Excellent diversification

The 3 months correlation between American and Pacific is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding American Shipping and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping 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 Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of American Shipping i.e., American Shipping and Pacific Basin go up and down completely randomly.

Pair Corralation between American Shipping and Pacific Basin

Assuming the 90 days horizon American Shipping is expected to generate 1.64 times more return on investment than Pacific Basin. However, American Shipping is 1.64 times more volatile than Pacific Basin Shipping. It trades about 0.09 of its potential returns per unit of risk. Pacific Basin Shipping is currently generating about 0.01 per unit of risk. If you would invest  225.00  in American Shipping on December 27, 2024 and sell it today you would earn a total of  47.00  from holding American Shipping or generate 20.89% return on investment over 90 days.

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

American Shipping  vs.  Pacific Basin Shipping

American Shipping

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Shipping are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, American Shipping reported solid returns over the last few months and may actually be approaching a breakup point.

Pacific Basin Shipping

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacific Basin Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Pacific Basin is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Shipping and Pacific Basin

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

The idea behind American Shipping and Pacific Basin Shipping 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.