Correlation Between National Retail and Summit Materials
Can any of the company-specific risk be diversified away by investing in both National Retail and Summit Materials 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 National Retail and Summit Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Retail Properties and Summit Materials, you can compare the effects of market volatilities on National Retail and Summit Materials 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 National Retail with a short position of Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and Summit Materials.
Diversification Opportunities for National Retail and Summit Materials
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between National and Summit is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and National Retail 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 National Retail Properties are associated (or correlated) with Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of National Retail i.e., National Retail and Summit Materials go up and down completely randomly.
Pair Corralation between National Retail and Summit Materials
Assuming the 90 days trading horizon National Retail Properties is expected to under-perform the Summit Materials. But the stock apears to be less risky and, when comparing its historical volatility, National Retail Properties is 1.32 times less risky than Summit Materials. The stock trades about -0.02 of its potential returns per unit of risk. The Summit Materials is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 4,220 in Summit Materials on August 29, 2024 and sell it today you would earn a total of 620.00 from holding Summit Materials or generate 14.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Retail Properties vs. Summit Materials
Performance |
| Timeline |
| National Retail Prop |
| Summit Materials |
National Retail and Summit Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Retail and Summit Materials
The main advantage of trading using opposite National Retail and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Retail position performs unexpectedly, Summit Materials 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 Summit Materials will offset losses from the drop in Summit Materials' long position.| National Retail vs. Apple Inc | National Retail vs. Apple Inc | National Retail vs. Apple Inc | National Retail vs. Apple Inc |
| Summit Materials vs. Apple Inc | Summit Materials vs. Apple Inc | Summit Materials vs. Apple Inc | Summit Materials vs. Apple Inc |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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