Correlation Between North American and Natural Gas
Can any of the company-specific risk be diversified away by investing in both North American and Natural Gas 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 Natural Gas 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 Natural Gas Services, you can compare the effects of market volatilities on North American and Natural Gas 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 Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Natural Gas.
Diversification Opportunities for North American and Natural Gas
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between North and Natural is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Natural Gas Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Services 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Services has no effect on the direction of North American i.e., North American and Natural Gas go up and down completely randomly.
Pair Corralation between North American and Natural Gas
Considering the 90-day investment horizon North American is expected to generate 1.91 times less return on investment than Natural Gas. But when comparing it to its historical volatility, North American Construction is 1.02 times less risky than Natural Gas. It trades about 0.25 of its potential returns per unit of risk. Natural Gas Services is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest 1,993 in Natural Gas Services on August 28, 2024 and sell it today you would earn a total of 752.00 from holding Natural Gas Services or generate 37.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. Natural Gas Services
Performance |
| Timeline |
| North American Const |
| Natural Gas Services |
North American and Natural Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Natural Gas
The main advantage of trading using opposite North American and Natural Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Natural Gas 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 Natural Gas will offset losses from the drop in Natural Gas' long position.| North American vs. ProPetro Holding Corp | North American vs. RPC Inc | North American vs. MRC Global | North American vs. Expro Group Holdings |
| Natural Gas vs. ProPetro Holding Corp | Natural Gas vs. RPC Inc | Natural Gas vs. MRC Global | Natural Gas vs. Expro Group 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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