Correlation Between North American and Industrial
Can any of the company-specific risk be diversified away by investing in both North American and Industrial 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 Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and Industrial and Commercial, you can compare the effects of market volatilities on North American and Industrial 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 Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Industrial.
Diversification Opportunities for North American and Industrial
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between North and Industrial is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial 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 Construction are associated (or correlated) with Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of North American i.e., North American and Industrial go up and down completely randomly.
Pair Corralation between North American and Industrial
Assuming the 90 days horizon North American Construction is expected to generate 1.01 times more return on investment than Industrial. However, North American is 1.01 times more volatile than Industrial and Commercial. It trades about 0.04 of its potential returns per unit of risk. Industrial and Commercial is currently generating about 0.03 per unit of risk. If you would invest 1,184 in North American Construction on August 29, 2024 and sell it today you would earn a total of 636.00 from holding North American Construction or generate 53.72% 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 Construction vs. Industrial and Commercial
Performance |
| Timeline |
| North American Const |
| Industrial and Commercial |
North American and Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Industrial
The main advantage of trading using opposite North American and Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Industrial 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 Industrial will offset losses from the drop in Industrial's long position.| North American vs. STMicroelectronics NV | North American vs. LPKF Laser Electronics | North American vs. Rayonier Advanced Materials | North American vs. Electronic Arts |
| Industrial vs. AGRICULTBK HADR25 YC | Industrial vs. The Toronto Dominion Bank | Industrial vs. Superior Plus Corp | Industrial vs. NMI Holdings |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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