Correlation Between North American and Diamond Estates
Can any of the company-specific risk be diversified away by investing in both North American and Diamond Estates 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 Diamond Estates 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 Diamond Estates Wines, you can compare the effects of market volatilities on North American and Diamond Estates 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 Diamond Estates. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Diamond Estates.
Diversification Opportunities for North American and Diamond Estates
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between North and Diamond is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Diamond Estates Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Estates Wines 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 Diamond Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Estates Wines has no effect on the direction of North American i.e., North American and Diamond Estates go up and down completely randomly.
Pair Corralation between North American and Diamond Estates
Assuming the 90 days trading horizon North American Financial is expected to generate 0.38 times more return on investment than Diamond Estates. However, North American Financial is 2.65 times less risky than Diamond Estates. It trades about 0.27 of its potential returns per unit of risk. Diamond Estates Wines is currently generating about -0.3 per unit of risk. If you would invest 685.00 in North American Financial on August 29, 2024 and sell it today you would earn a total of 77.00 from holding North American Financial or generate 11.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Financial vs. Diamond Estates Wines
Performance |
| Timeline |
| North American Financial |
| Diamond Estates Wines |
North American and Diamond Estates Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Diamond Estates
The main advantage of trading using opposite North American and Diamond Estates positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Diamond Estates 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 Diamond Estates will offset losses from the drop in Diamond Estates' long position.| North American vs. Dividend Growth Split | North American vs. Dividend 15 Split | North American vs. Financial 15 Split | North American vs. Dividend 15 Split |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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