Correlation Between Northeast Bancorp and EuroDry

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

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

Diversification Opportunities for Northeast Bancorp and EuroDry

-0.18

Correlation Coefficient

Northeast Bancorp  EuroDry

Good diversification

The 3 months correlation between Northeast and EuroDry is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Northeast Bancorp and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry and Northeast Bancorp 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 Northeast Bancorp 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 Northeast Bancorp i.e., Northeast Bancorp and EuroDry go up and down completely randomly.

Pair Corralation between Northeast Bancorp and EuroDry

Considering the 90-day investment horizon Northeast Bancorp is expected to generate 1.05 times more return on investment than EuroDry. However, Northeast Bancorp is 1.05 times more volatile than EuroDry. It trades about -0.03 of its potential returns per unit of risk. EuroDry is currently generating about -0.19 per unit of risk. If you would invest  5,348  in Northeast Bancorp on January 20, 2024 and sell it today you would lose (65.00) from holding Northeast Bancorp or give up 1.22% of portfolio value over 90 days.

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

Northeast Bancorp  vs.  EuroDry

Northeast Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northeast Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Northeast Bancorp is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 Northeast Bancorp and EuroDry

The main advantage of trading using opposite Northeast Bancorp and EuroDry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northeast Bancorp 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 Northeast Bancorp 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.