Correlation Between North American and Oceanic Iron
Can any of the company-specific risk be diversified away by investing in both North American and Oceanic Iron 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 Oceanic Iron 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 Oceanic Iron Ore, you can compare the effects of market volatilities on North American and Oceanic Iron 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 Oceanic Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Oceanic Iron.
Diversification Opportunities for North American and Oceanic Iron
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between North and Oceanic is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Oceanic Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oceanic Iron Ore 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 Oceanic Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oceanic Iron Ore has no effect on the direction of North American i.e., North American and Oceanic Iron go up and down completely randomly.
Pair Corralation between North American and Oceanic Iron
Assuming the 90 days trading horizon North American is expected to generate 2.75 times less return on investment than Oceanic Iron. But when comparing it to its historical volatility, North American Financial is 3.3 times less risky than Oceanic Iron. It trades about 0.06 of its potential returns per unit of risk. Oceanic Iron Ore is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 10.00 in Oceanic Iron Ore on December 8, 2024 and sell it today you would earn a total of 10.00 from holding Oceanic Iron Ore or generate 100.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Financial vs. Oceanic Iron Ore
Performance |
| Timeline |
| North American Financial |
| Oceanic Iron Ore |
North American and Oceanic Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Oceanic Iron
The main advantage of trading using opposite North American and Oceanic Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Oceanic Iron 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 Oceanic Iron will offset losses from the drop in Oceanic Iron's 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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