Correlation Between Tree Island and Northstar Clean
Can any of the company-specific risk be diversified away by investing in both Tree Island and Northstar Clean 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 Tree Island and Northstar Clean into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tree Island Steel and Northstar Clean Technologies, you can compare the effects of market volatilities on Tree Island and Northstar Clean 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 Tree Island with a short position of Northstar Clean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tree Island and Northstar Clean.
Diversification Opportunities for Tree Island and Northstar Clean
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Tree and Northstar is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Tree Island Steel and Northstar Clean Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northstar Clean Tech and Tree Island 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 Tree Island Steel are associated (or correlated) with Northstar Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northstar Clean Tech has no effect on the direction of Tree Island i.e., Tree Island and Northstar Clean go up and down completely randomly.
Pair Corralation between Tree Island and Northstar Clean
Assuming the 90 days trading horizon Tree Island is expected to generate 2.41 times less return on investment than Northstar Clean. But when comparing it to its historical volatility, Tree Island Steel is 1.14 times less risky than Northstar Clean. It trades about 0.07 of its potential returns per unit of risk. Northstar Clean Technologies is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 25.00 in Northstar Clean Technologies on August 29, 2024 and sell it today you would earn a total of 3.00 from holding Northstar Clean Technologies or generate 12.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tree Island Steel vs. Northstar Clean Technologies
Performance |
| Timeline |
| Tree Island Steel |
| Northstar Clean Tech |
Tree Island and Northstar Clean Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tree Island and Northstar Clean
The main advantage of trading using opposite Tree Island and Northstar Clean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tree Island position performs unexpectedly, Northstar Clean 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 Northstar Clean will offset losses from the drop in Northstar Clean's long position.The idea behind Tree Island Steel and Northstar Clean Technologies 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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