Correlation Between Nordic American and TOP Ships

Can any of the company-specific risk be diversified away by investing in both Nordic American and TOP Ships 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 TOP Ships 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 TOP Ships, you can compare the effects of market volatilities on Nordic American and TOP Ships 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 TOP Ships. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nordic American and TOP Ships.

Diversification Opportunities for Nordic American and TOP Ships

0.58

Correlation Coefficient

Nordic American  TOP Ships

Very weak diversification

The 3 months correlation between Nordic and TOP is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Nordic American Tankers and TOP Ships in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOP Ships 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 TOP Ships. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOP Ships has no effect on the direction of Nordic American i.e., Nordic American and TOP Ships go up and down completely randomly.

Pair Corralation between Nordic American and TOP Ships

Considering the 90-day investment horizon Nordic American Tankers is expected to generate 0.94 times more return on investment than TOP Ships. However, Nordic American Tankers is 1.07 times less risky than TOP Ships. It trades about 0.04 of its potential returns per unit of risk. TOP Ships is currently generating about 0.01 per unit of risk. If you would invest  246.00  in Nordic American Tankers on December 24, 2024 and sell it today you would earn a total of  10.00  from holding Nordic American Tankers or generate 4.07% return on investment over 90 days.

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

Nordic American Tankers  vs.  TOP Ships

Nordic American Tankers

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic American Tankers are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Nordic American is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

TOP Ships

Risk-Adjusted Performance

Weak

Over the last 90 days TOP Ships has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, TOP Ships is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Nordic American and TOP Ships

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

The idea behind Nordic American Tankers and TOP Ships 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.