Correlation Between US Financial and North American
Can any of the company-specific risk be diversified away by investing in both US 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 US 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 US Financial 15 and North American Construction, you can compare the effects of market volatilities on US 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 US Financial with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Financial and North American.
Diversification Opportunities for US Financial and North American
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between FTU-PB and North is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 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 US 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 US Financial 15 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 US Financial i.e., US Financial and North American go up and down completely randomly.
Pair Corralation between US Financial and North American
Assuming the 90 days trading horizon US Financial 15 is expected to generate 0.69 times more return on investment than North American. However, US Financial 15 is 1.46 times less risky than North American. It trades about 0.12 of its potential returns per unit of risk. North American Construction is currently generating about 0.02 per unit of risk. If you would invest 618.00 in US Financial 15 on September 3, 2024 and sell it today you would earn a total of 154.00 from holding US Financial 15 or generate 24.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Financial 15 vs. North American Construction
Performance |
| Timeline |
| US Financial 15 |
| North American Const |
US Financial and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Financial and North American
The main advantage of trading using opposite US Financial and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US 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.| US Financial vs. Apple Inc CDR | US Financial vs. Microsoft Corp CDR | US Financial vs. Amazon CDR | US Financial vs. Alphabet Inc CDR |
| North American vs. PHX Energy Services | North American vs. CES Energy Solutions | North American vs. Total Energy Services | North American vs. Pason Systems |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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