Correlation Between North American and US Financial
Can any of the company-specific risk be diversified away by investing in both North American and US Financial 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 North American and US Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Financial and US Financial 15, you can compare the effects of market volatilities on North American and US Financial 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 North American with a short position of US Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and US Financial.
Diversification Opportunities for North American and US Financial
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between North and FTU-PB is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and US Financial 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Financial 15 and North American 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 North American Financial are associated (or correlated) with US Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Financial 15 has no effect on the direction of North American i.e., North American and US Financial go up and down completely randomly.
Pair Corralation between North American and US Financial
Assuming the 90 days trading horizon North American is expected to generate 2.24 times less return on investment than US Financial. But when comparing it to its historical volatility, North American Financial is 11.95 times less risky than US Financial. It trades about 0.49 of its potential returns per unit of risk. US Financial 15 is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 724.00 in US Financial 15 on August 28, 2024 and sell it today you would earn a total of 35.00 from holding US Financial 15 or generate 4.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
North American Financial vs. US Financial 15
Performance |
| Timeline |
| North American Financial |
| US Financial 15 |
North American and US Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and US Financial
The main advantage of trading using opposite North American and US Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, US Financial 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 US Financial will offset losses from the drop in US Financial's long position.| North American vs. Financial 15 Split | North American vs. Dividend 15 Split | North American vs. Dividend Growth Split | North American vs. Dividend 15 Split |
| US Financial vs. North American Financial | US Financial vs. Prime Dividend Corp | US Financial vs. Canadian Life Companies | US Financial vs. Financial 15 Split |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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