Correlation Between North American and Western Investment
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and Western Investment 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 Western Investment, you can compare the effects of market volatilities on North American 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 North American with a short position of Western Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Western Investment.
Diversification Opportunities for North American and Western Investment
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between North and Western is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Western Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Investment 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 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 North American i.e., North American and Western Investment go up and down completely randomly.
Pair Corralation between North American and Western Investment
Assuming the 90 days trading horizon North American Construction is expected to under-perform the Western Investment. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 1.26 times less risky than Western Investment. The stock trades about -0.3 of its potential returns per unit of risk. The Western Investment is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 62.00 in Western Investment on November 7, 2024 and sell it today you would earn a total of 1.00 from holding Western Investment or generate 1.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. Western Investment
Performance |
| Timeline |
| North American Const |
| Western Investment |
North American and Western Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Western Investment
The main advantage of trading using opposite North American and Western Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.| North American vs. PHX Energy Services | North American vs. CES Energy Solutions | North American vs. Total Energy Services | North American vs. Pason Systems |
| Western Investment vs. Imperial Metals | Western Investment vs. Globex Mining Enterprises | Western Investment vs. Wilmington Capital Management | Western Investment vs. Blackrock Silver 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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