Correlation Between Now and North American
Can any of the company-specific risk be diversified away by investing in both Now and North American 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 Now and North American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Now Inc and North American Construction, you can compare the effects of market volatilities on Now and North American 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 Now with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Now and North American.
Diversification Opportunities for Now and North American
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Now and North is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Now Inc and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const and Now 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 Now Inc are associated (or correlated) with North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Now i.e., Now and North American go up and down completely randomly.
Pair Corralation between Now and North American
Given the investment horizon of 90 days Now Inc is expected to generate 0.98 times more return on investment than North American. However, Now Inc is 1.02 times less risky than North American. It trades about 0.34 of its potential returns per unit of risk. North American Construction is currently generating about 0.25 per unit of risk. If you would invest 1,198 in Now Inc on August 28, 2024 and sell it today you would earn a total of 301.00 from holding Now Inc or generate 25.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Now Inc vs. North American Construction
Performance |
| Timeline |
| Now Inc |
| North American Const |
Now and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Now and North American
The main advantage of trading using opposite Now and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Now position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.The idea behind Now Inc and North American Construction 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.| North American vs. ProPetro Holding Corp | North American vs. RPC Inc | North American vs. MRC Global | North American vs. Expro Group Holdings |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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