Correlation Between North American and Pan American
Can any of the company-specific risk be diversified away by investing in both North American and Pan 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 North American and Pan American 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 Pan American Silver, you can compare the effects of market volatilities on North American and Pan 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 North American with a short position of Pan American. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Pan American.
Diversification Opportunities for North American and Pan American
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between North and Pan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Pan American Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan American Silver 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 Pan American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan American Silver has no effect on the direction of North American i.e., North American and Pan American go up and down completely randomly.
Pair Corralation between North American and Pan American
Assuming the 90 days trading horizon North American Financial is expected to generate 0.71 times more return on investment than Pan American. However, North American Financial is 1.41 times less risky than Pan American. It trades about 0.27 of its potential returns per unit of risk. Pan American Silver is currently generating about -0.17 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 75.00 from holding North American Financial or generate 10.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Financial vs. Pan American Silver
Performance |
| Timeline |
| North American Financial |
| Pan American Silver |
North American and Pan American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Pan American
The main advantage of trading using opposite North American and Pan American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Pan 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 Pan American will offset losses from the drop in Pan American'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 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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