Correlation Between Nordic American and EuroDry

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

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

Diversification Opportunities for Nordic American and EuroDry

0.98

Correlation Coefficient

Nordic American  EuroDry

Almost no diversification

The 3 months correlation between Nordic and EuroDry is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Nordic American Tankers and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry and Nordic American 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 Nordic American Tankers are associated (or correlated) with EuroDry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EuroDry has no effect on the direction of Nordic American i.e., Nordic American and EuroDry go up and down completely randomly.

Pair Corralation between Nordic American and EuroDry

Considering the 90-day investment horizon Nordic American Tankers is expected to generate 0.69 times more return on investment than EuroDry. However, Nordic American Tankers is 1.44 times less risky than EuroDry. It trades about -0.24 of its potential returns per unit of risk. EuroDry is currently generating about -0.21 per unit of risk. If you would invest  284.00  in Nordic American Tankers on September 27, 2024 and sell it today you would lose (32.00) from holding Nordic American Tankers or give up 11.27% of portfolio value over 90 days.

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

Nordic American Tankers  vs.  EuroDry

Nordic American Tankers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nordic American Tankers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 uncertain performance in the last few months, the Stock's basic indicators remain fairly 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 Nordic American and EuroDry

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

The idea behind Nordic American Tankers and EuroDry 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.