Correlation Between Euroseas and Western Bulk

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

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

Diversification Opportunities for Euroseas and Western Bulk

0.7

Correlation Coefficient

Euroseas  Western Bulk

Poor diversification

The 3 months correlation between Euroseas and Western is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Euroseas and Western Bulk Chartering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Bulk Chartering 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 Western Bulk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Bulk Chartering has no effect on the direction of Euroseas i.e., Euroseas and Western Bulk go up and down completely randomly.

Pair Corralation between Euroseas and Western Bulk

Given the investment horizon of 90 days Euroseas is expected to generate 1.11 times more return on investment than Western Bulk. However, Euroseas is 1.11 times more volatile than Western Bulk Chartering. It trades about 0.01 of its potential returns per unit of risk. Western Bulk Chartering is currently generating about -0.11 per unit of risk. If you would invest  3,467  in Euroseas on September 24, 2024 and sell it today you would lose (45.00) from holding Euroseas or give up 1.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Euroseas  vs.  Western Bulk Chartering

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.

Western Bulk Chartering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Bulk Chartering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Euroseas and Western Bulk

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

The idea behind Euroseas and Western Bulk Chartering 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .