Correlation Between EuroDry and Hafnia

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

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

Diversification Opportunities for EuroDry and Hafnia

0.94

Correlation Coefficient

EuroDry  Hafnia

Almost no diversification

The 3 months correlation between EuroDry and Hafnia is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding EuroDry and Hafnia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hafnia Limited 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 Hafnia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hafnia Limited has no effect on the direction of EuroDry i.e., EuroDry and Hafnia go up and down completely randomly.

Pair Corralation between EuroDry and Hafnia

Given the investment horizon of 90 days EuroDry is expected to under-perform the Hafnia. But the stock apears to be less risky and, when comparing its historical volatility, EuroDry is 1.04 times less risky than Hafnia. The stock trades about -0.45 of its potential returns per unit of risk. The Hafnia Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  581.00  in Hafnia Limited on September 1, 2024 and sell it today you would lose (17.00) from holding Hafnia Limited or give up 2.93% of portfolio value over 90 days.

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

EuroDry  vs.  Hafnia Limited

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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Hafnia Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hafnia Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with EuroDry and Hafnia

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

The idea behind EuroDry and Hafnia Limited 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.