Correlation Between Solo Brands and EuroDry

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

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

Diversification Opportunities for Solo Brands and EuroDry

0.04

Correlation Coefficient

Solo Brands  EuroDry

Significant diversification

The 3 months correlation between Solo and EuroDry is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Solo Brands and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry and Solo Brands 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 Solo Brands 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 Solo Brands i.e., Solo Brands and EuroDry go up and down completely randomly.

Pair Corralation between Solo Brands and EuroDry

Considering the 90-day investment horizon Solo Brands is expected to under-perform the EuroDry. In addition to that, Solo Brands is 2.81 times more volatile than EuroDry. It trades about -0.03 of its total potential returns per unit of risk. EuroDry is currently generating about 0.03 per unit of volatility. If you would invest  1,869  in EuroDry on January 24, 2024 and sell it today you would earn a total of  204.00  from holding EuroDry or generate 10.91% return on investment over 90 days.

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

Solo Brands  vs.  EuroDry

Solo Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solo Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 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 Solo Brands and EuroDry

The main advantage of trading using opposite Solo Brands and EuroDry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solo Brands 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 Solo Brands 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.