Correlation Between Euroseas and Pacific Basin

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

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

Diversification Opportunities for Euroseas and Pacific Basin

0.18

Correlation Coefficient

Euroseas  Pacific Basin

Average diversification

The 3 months correlation between Euroseas and Pacific is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Euroseas 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 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 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 Euroseas i.e., Euroseas and Pacific Basin go up and down completely randomly.

Pair Corralation between Euroseas and Pacific Basin

Given the investment horizon of 90 days Euroseas is expected to under-perform the Pacific Basin. In addition to that, Euroseas is 1.38 times more volatile than Pacific Basin Shipping. It trades about -0.04 of its total potential returns per unit of risk. Pacific Basin Shipping is currently generating about 0.01 per unit of volatility. If you would invest  21.00  in Pacific Basin Shipping on December 24, 2024 and sell it today you would earn a total of  0.00  from holding Pacific Basin Shipping or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.44%
Values	Daily Returns

Euroseas  vs.  Pacific Basin Shipping

Euroseas

Risk-Adjusted Performance

Very Weak

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

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 Euroseas and Pacific Basin

The main advantage of trading using opposite Euroseas and Pacific Basin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Euroseas 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 Euroseas 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.