Correlation Between KNOT Offshore and Euroseas

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

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

Diversification Opportunities for KNOT Offshore and Euroseas

0.91

Correlation Coefficient

KNOT Offshore  Euroseas

Almost no diversification

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

Pair Corralation between KNOT Offshore and Euroseas

Given the investment horizon of 90 days KNOT Offshore Partners is expected to under-perform the Euroseas. But the stock apears to be less risky and, when comparing its historical volatility, KNOT Offshore Partners is 1.44 times less risky than Euroseas. The stock trades about -0.27 of its potential returns per unit of risk. The Euroseas is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  3,752  in Euroseas on September 29, 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	95.24%
Values	Daily Returns

KNOT Offshore Partners  vs.  Euroseas

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.

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.

Pair Trading with KNOT Offshore and Euroseas

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

The idea behind KNOT Offshore Partners and Euroseas 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.