Correlation Between Western Bulk and Algoma Central

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

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

Diversification Opportunities for Western Bulk and Algoma Central

0.15

Correlation Coefficient

Western Bulk  Algoma Central

Average diversification

The 3 months correlation between Western and Algoma is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Western Bulk Chartering and Algoma Central in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Central and Western Bulk 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 Western Bulk Chartering are associated (or correlated) with Algoma Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Central has no effect on the direction of Western Bulk i.e., Western Bulk and Algoma Central go up and down completely randomly.

Pair Corralation between Western Bulk and Algoma Central

Assuming the 90 days horizon Western Bulk Chartering is expected to under-perform the Algoma Central. In addition to that, Western Bulk is 2.55 times more volatile than Algoma Central. It trades about -0.11 of its total potential returns per unit of risk. Algoma Central is currently generating about 0.05 per unit of volatility. If you would invest  1,019  in Algoma Central on September 24, 2024 and sell it today you would earn a total of  56.00  from holding Algoma Central or generate 5.5% return on investment over 90 days.

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

Western Bulk Chartering  vs.  Algoma Central

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.

Algoma Central

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Central are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Algoma Central is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Western Bulk and Algoma Central

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

The idea behind Western Bulk Chartering and Algoma Central 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.