Correlation Between National Bank and Western Investment
Can any of the company-specific risk be diversified away by investing in both National Bank and Western Investment 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 National Bank and Western Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Bank of and Western Investment, you can compare the effects of market volatilities on National Bank and Western Investment 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 National Bank with a short position of Western Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Western Investment.
Diversification Opportunities for National Bank and Western Investment
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between National and Western is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment and National Bank 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 National Bank of are associated (or correlated) with Western Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Investment has no effect on the direction of National Bank i.e., National Bank and Western Investment go up and down completely randomly.
Pair Corralation between National Bank and Western Investment
Assuming the 90 days trading horizon National Bank is expected to generate 7.01 times less return on investment than Western Investment. But when comparing it to its historical volatility, National Bank of is 9.81 times less risky than Western Investment. It trades about 0.2 of its potential returns per unit of risk. Western Investment is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 42.00 in Western Investment on September 3, 2024 and sell it today you would earn a total of 5.00 from holding Western Investment or generate 11.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bank of vs. Western Investment
Performance |
| Timeline |
| National Bank |
| Western Investment |
National Bank and Western Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bank and Western Investment
The main advantage of trading using opposite National Bank and Western Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank position performs unexpectedly, Western Investment 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 Western Investment will offset losses from the drop in Western Investment's long position.| National Bank vs. Cogeco Communications | National Bank vs. Economic Investment Trust | National Bank vs. Richelieu Hardware | National Bank vs. Renoworks Software |
| Western Investment vs. Colliers International Group | Western Investment vs. Altus Group Limited | Western Investment vs. Harvest Global REIT | Western Investment vs. International Zeolite Corp |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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