Correlation Between Western Bulk and EuroDry

Can any of the company-specific risk be diversified away by investing in both Western Bulk 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 Western Bulk and EuroDry 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 EuroDry, you can compare the effects of market volatilities on Western Bulk 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 Western Bulk with a short position of EuroDry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Bulk and EuroDry.

Diversification Opportunities for Western Bulk and EuroDry

0.92

Correlation Coefficient

Western Bulk  EuroDry

Almost no diversification

The 3 months correlation between Western and EuroDry is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Western Bulk Chartering and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry 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 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 Western Bulk i.e., Western Bulk and EuroDry go up and down completely randomly.

Pair Corralation between Western Bulk and EuroDry

Assuming the 90 days horizon Western Bulk Chartering is expected to generate 1.91 times more return on investment than EuroDry. However, Western Bulk is 1.91 times more volatile than EuroDry. It trades about -0.15 of its potential returns per unit of risk. EuroDry is currently generating about -0.34 per unit of risk. If you would invest  229.00  in Western Bulk Chartering on September 14, 2024 and sell it today you would lose (78.00) from holding Western Bulk Chartering or give up 34.06% of portfolio value over 90 days.

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

Western Bulk Chartering  vs.  EuroDry

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 weak 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.

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 unsteady 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 Western Bulk and EuroDry

The main advantage of trading using opposite Western Bulk and EuroDry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Bulk 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 Western Bulk Chartering 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.