Correlation Between Financial and North American
Can any of the company-specific risk be diversified away by investing in both Financial 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 Financial and North American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial 15 Split and North American Construction, you can compare the effects of market volatilities on Financial 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 Financial with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and North American.
Diversification Opportunities for Financial and North American
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financial and North is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split 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 Financial 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 Financial 15 Split 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 Financial i.e., Financial and North American go up and down completely randomly.
Pair Corralation between Financial and North American
Assuming the 90 days trading horizon Financial is expected to generate 2.26 times less return on investment than North American. But when comparing it to its historical volatility, Financial 15 Split is 4.33 times less risky than North American. It trades about 0.31 of its potential returns per unit of risk. North American Construction is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,703 in North American Construction on September 1, 2024 and sell it today you would earn a total of 155.00 from holding North American Construction or generate 5.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial 15 Split vs. North American Construction
Performance |
| Timeline |
| Financial 15 Split |
| North American Const |
Financial and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial and North American
The main advantage of trading using opposite Financial and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial 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.| Financial vs. North American Financial | Financial vs. Dividend 15 Split | Financial vs. Dividend Growth Split | Financial 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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