Correlation Between EuroDry and Diana Shipping

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

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

Diversification Opportunities for EuroDry and Diana Shipping

-0.1

Correlation Coefficient

EuroDry  Diana Shipping

Good diversification

The 3 months correlation between EuroDry and Diana is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding EuroDry and Diana Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diana 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 Diana Shipping. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diana Shipping has no effect on the direction of EuroDry i.e., EuroDry and Diana Shipping go up and down completely randomly.

Pair Corralation between EuroDry and Diana Shipping

Given the investment horizon of 90 days EuroDry is expected to generate 1.21 times more return on investment than Diana Shipping. However, EuroDry is 1.21 times more volatile than Diana Shipping. It trades about 0.01 of its potential returns per unit of risk. Diana Shipping is currently generating about -0.09 per unit of risk. If you would invest  1,121  in EuroDry on December 28, 2024 and sell it today you would lose (11.00) from holding EuroDry or give up 0.98% of portfolio value over 90 days.

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

EuroDry  vs.  Diana Shipping

EuroDry

Risk-Adjusted Performance

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.

Diana Shipping

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diana Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with EuroDry and Diana Shipping

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

The idea behind EuroDry and Diana 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.