Correlation Between North American and X FAB
Can any of the company-specific risk be diversified away by investing in both North American and X FAB 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 X FAB 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 X FAB Silicon Foundries, you can compare the effects of market volatilities on North American and X FAB 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 X FAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and X FAB.
Diversification Opportunities for North American and X FAB
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between North and XFB is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon 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 X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of North American i.e., North American and X FAB go up and down completely randomly.
Pair Corralation between North American and X FAB
Assuming the 90 days horizon North American Construction is expected to generate 1.36 times more return on investment than X FAB. However, North American is 1.36 times more volatile than X FAB Silicon Foundries. It trades about -0.17 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about -0.37 per unit of risk. If you would invest 1,671 in North American Construction on January 2, 2025 and sell it today you would lose (201.00) from holding North American Construction or give up 12.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
North American Construction vs. X FAB Silicon Foundries
Performance |
| Timeline |
| North American Const |
| X FAB Silicon |
North American and X FAB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and X FAB
The main advantage of trading using opposite North American and X FAB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, X FAB 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 X FAB will offset losses from the drop in X FAB's long position.| North American vs. EMPEROR ENT HOTEL | North American vs. COVIVIO HOTELS INH | North American vs. HOCHSCHILD MINING | North American vs. TROPHY GAMES DEV |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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