Correlation Between Now and North American

Can any of the company-specific risk be diversified away by investing in both Now 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 Now and North American into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Now Inc and North American Construction, you can compare the effects of market volatilities on Now 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 Now with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Now and North American.

Diversification Opportunities for Now and North American

0.73

Correlation Coefficient

Now  North American

Poor diversification

The 3 months correlation between Now and North is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Now Inc 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 Now 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 Now Inc 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 Now i.e., Now and North American go up and down completely randomly.

Pair Corralation between Now and North American

Given the investment horizon of 90 days Now Inc is expected to under-perform the North American. But the stock apears to be less risky and, when comparing its historical volatility, Now Inc is 1.3 times less risky than North American. The stock trades about -0.25 of its potential returns per unit of risk. The North American Construction is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,963  in North American Construction on September 20, 2024 and sell it today you would earn a total of  83.00  from holding North American Construction or generate 4.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Now Inc  vs.  North American Construction

Now Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Now Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Now is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

North American Const

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, North American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Now and North American

The main advantage of trading using opposite Now and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Now 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 Now Inc 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.