Correlation Between Ternium SA and EuroDry

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

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

Diversification Opportunities for Ternium SA and EuroDry

-0.19

Correlation Coefficient

Ternium SA  EuroDry

Good diversification

The 3 months correlation between Ternium and EuroDry is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ternium SA ADR and EuroDry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroDry and Ternium SA 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 Ternium SA ADR 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 Ternium SA i.e., Ternium SA and EuroDry go up and down completely randomly.

Pair Corralation between Ternium SA and EuroDry

Allowing for the 90-day total investment horizon Ternium SA is expected to generate 3.5 times less return on investment than EuroDry. But when comparing it to its historical volatility, Ternium SA ADR is 1.0 times less risky than EuroDry. It trades about 0.03 of its potential returns per unit of risk. EuroDry is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,400  in EuroDry on January 25, 2024 and sell it today you would earn a total of  673.00  from holding EuroDry or generate 48.07% return on investment over 90 days.

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

Ternium SA ADR  vs.  EuroDry

Ternium SA ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ternium SA ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Ternium SA may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 Ternium SA and EuroDry

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

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.