Correlation Between TOP Ships and EuroDry

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

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

Diversification Opportunities for TOP Ships and EuroDry

0.4

Correlation Coefficient

TOP Ships  EuroDry

Very weak diversification

The 3 months correlation between TOP and EuroDry is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding TOP Ships and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry and TOP Ships 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 TOP Ships 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 TOP Ships i.e., TOP Ships and EuroDry go up and down completely randomly.

Pair Corralation between TOP Ships and EuroDry

Given the investment horizon of 90 days TOP Ships is expected to generate 1.02 times more return on investment than EuroDry. However, TOP Ships is 1.02 times more volatile than EuroDry. It trades about 0.05 of its potential returns per unit of risk. EuroDry is currently generating about 0.0 per unit of risk. If you would invest  612.00  in TOP Ships on December 27, 2024 and sell it today you would earn a total of  32.00  from holding TOP Ships or generate 5.23% return on investment over 90 days.

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

TOP Ships  vs.  EuroDry

TOP Ships

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TOP Ships are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, TOP Ships may actually be approaching a critical reversion point that can send shares even higher in April 2025.

EuroDry

Risk-Adjusted Performance

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 fairly strong basic indicators, EuroDry is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TOP Ships and EuroDry

The main advantage of trading using opposite TOP Ships and EuroDry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TOP Ships 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 TOP Ships 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.