Correlation Between NFI and Cargojet
Can any of the company-specific risk be diversified away by investing in both NFI and Cargojet 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 NFI and Cargojet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NFI Group and Cargojet, you can compare the effects of market volatilities on NFI and Cargojet 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 NFI with a short position of Cargojet. Check out your portfolio center. Please also check ongoing floating volatility patterns of NFI and Cargojet.
Diversification Opportunities for NFI and Cargojet
Good diversification
The 3 months correlation between NFI and Cargojet is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding NFI Group and Cargojet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cargojet and NFI 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 NFI Group are associated (or correlated) with Cargojet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cargojet has no effect on the direction of NFI i.e., NFI and Cargojet go up and down completely randomly.
Pair Corralation between NFI and Cargojet
Assuming the 90 days trading horizon NFI Group is expected to under-perform the Cargojet. But the stock apears to be less risky and, when comparing its historical volatility, NFI Group is 1.04 times less risky than Cargojet. The stock trades about -0.32 of its potential returns per unit of risk. The Cargojet is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 13,285 in Cargojet on August 25, 2024 and sell it today you would lose (970.00) from holding Cargojet or give up 7.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NFI Group vs. Cargojet
Performance |
| Timeline |
| NFI Group |
| Cargojet |
NFI and Cargojet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NFI and Cargojet
The main advantage of trading using opposite NFI and Cargojet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NFI position performs unexpectedly, Cargojet 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 Cargojet will offset losses from the drop in Cargojet's long position.The idea behind NFI Group and Cargojet pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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