Correlation Between X FAB and North American
Can any of the company-specific risk be diversified away by investing in both X FAB 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 X FAB and North American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between X FAB Silicon Foundries and North American Construction, you can compare the effects of market volatilities on X FAB 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 X FAB with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and North American.
Diversification Opportunities for X FAB and North American
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between XFB and North is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries 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 X FAB 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 X FAB Silicon Foundries 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 X FAB i.e., X FAB and North American go up and down completely randomly.
Pair Corralation between X FAB and North American
Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the North American. In addition to that, X FAB is 1.16 times more volatile than North American Construction. It trades about -0.06 of its total potential returns per unit of risk. North American Construction is currently generating about 0.02 per unit of volatility. If you would invest 1,866 in North American Construction on September 24, 2024 and sell it today you would earn a total of 94.00 from holding North American Construction or generate 5.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
X FAB Silicon Foundries vs. North American Construction
Performance |
| Timeline |
| X FAB Silicon |
| North American Const |
X FAB and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with X FAB and North American
The main advantage of trading using opposite X FAB and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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.The idea behind X FAB Silicon Foundries and North American Construction 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.| North American vs. Schlumberger Limited | North American vs. Halliburton | North American vs. Halliburton | North American vs. Baker Hughes Co |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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