Correlation Between Total Energy and North American
Can any of the company-specific risk be diversified away by investing in both Total Energy and North American 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 Total Energy and North American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Total Energy Services and North American Construction, you can compare the effects of market volatilities on Total Energy and North American 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 Total Energy with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Energy and North American.
Diversification Opportunities for Total Energy and North American
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Total and North is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Total Energy Services and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const and Total Energy 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 Total Energy Services are associated (or correlated) with North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Total Energy i.e., Total Energy and North American go up and down completely randomly.
Pair Corralation between Total Energy and North American
Assuming the 90 days trading horizon Total Energy Services is expected to generate 0.6 times more return on investment than North American. However, Total Energy Services is 1.67 times less risky than North American. It trades about 0.19 of its potential returns per unit of risk. North American Construction is currently generating about 0.02 per unit of risk. If you would invest 1,126 in Total Energy Services on October 20, 2024 and sell it today you would earn a total of 58.00 from holding Total Energy Services or generate 5.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Total Energy Services vs. North American Construction
Performance |
| Timeline |
| Total Energy Services |
| North American Const |
Total Energy and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Total Energy and North American
The main advantage of trading using opposite Total Energy and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Energy position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.| Total Energy vs. PHX Energy Services | Total Energy vs. Pason Systems | Total Energy vs. CES Energy Solutions | Total Energy vs. Western Energy Services |
| North American vs. PHX Energy Services | North American vs. CES Energy Solutions | North American vs. Total Energy Services | North American vs. Pason Systems |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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