Correlation Between EuroDry and American Shipping

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

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

Diversification Opportunities for EuroDry and American Shipping

0.82

Correlation Coefficient

EuroDry  American Shipping

Very poor diversification

The 3 months correlation between EuroDry and American is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding EuroDry and American Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Shipping 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 American Shipping. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Shipping has no effect on the direction of EuroDry i.e., EuroDry and American Shipping go up and down completely randomly.

Pair Corralation between EuroDry and American Shipping

Given the investment horizon of 90 days EuroDry is expected to under-perform the American Shipping. But the stock apears to be less risky and, when comparing its historical volatility, EuroDry is 1.29 times less risky than American Shipping. The stock trades about -0.25 of its potential returns per unit of risk. The American Shipping is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  255.00  in American Shipping on October 26, 2024 and sell it today you would earn a total of  23.00  from holding American Shipping or generate 9.02% return on investment over 90 days.

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

EuroDry  vs.  American Shipping

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.

American Shipping

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Shipping are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, American Shipping reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EuroDry and American Shipping

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

The idea behind EuroDry and American 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.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.