Correlation Between Euroseas and KNOT Offshore

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

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

Diversification Opportunities for Euroseas and KNOT Offshore

0.91

Correlation Coefficient

Euroseas  KNOT Offshore

Almost no diversification

The 3 months correlation between Euroseas and KNOT is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Euroseas and KNOT Offshore Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KNOT Offshore Partners and Euroseas 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 Euroseas are associated (or correlated) with KNOT Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KNOT Offshore Partners has no effect on the direction of Euroseas i.e., Euroseas and KNOT Offshore go up and down completely randomly.

Pair Corralation between Euroseas and KNOT Offshore

Given the investment horizon of 90 days Euroseas is expected to generate 1.47 times more return on investment than KNOT Offshore. However, Euroseas is 1.47 times more volatile than KNOT Offshore Partners. It trades about -0.16 of its potential returns per unit of risk. KNOT Offshore Partners is currently generating about -0.26 per unit of risk. If you would invest  3,752  in Euroseas on September 30, 2024 and sell it today you would lose (279.00) from holding Euroseas or give up 7.44% of portfolio value over 90 days.

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

Euroseas  vs.  KNOT Offshore Partners

Euroseas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Euroseas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

KNOT Offshore Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KNOT Offshore Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Euroseas and KNOT Offshore

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

The idea behind Euroseas and KNOT Offshore Partners 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.