Correlation Between North American and Black Mammoth

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

By analyzing existing cross correlation between North American Financial and Black Mammoth Metals, you can compare the effects of market volatilities on North American and Black Mammoth 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 Black Mammoth. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Black Mammoth.

Diversification Opportunities for North American and Black Mammoth

0.41

Correlation Coefficient

North American  Black Mammoth

Very weak diversification

The 3 months correlation between North and Black is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Black Mammoth Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Mammoth Metals 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 Financial are associated (or correlated) with Black Mammoth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Mammoth Metals has no effect on the direction of North American i.e., North American and Black Mammoth go up and down completely randomly.

Pair Corralation between North American and Black Mammoth

Assuming the 90 days trading horizon North American is expected to generate 1.68 times less return on investment than Black Mammoth. But when comparing it to its historical volatility, North American Financial is 3.93 times less risky than Black Mammoth. It trades about 0.12 of its potential returns per unit of risk. Black Mammoth Metals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  82.00  in Black Mammoth Metals on September 21, 2024 and sell it today you would earn a total of  11.00  from holding Black Mammoth Metals or generate 13.41% return on investment over 90 days.

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

North American Financial  vs.  Black Mammoth Metals

North American Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Black Mammoth Metals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Black Mammoth Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Black Mammoth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Black Mammoth

The main advantage of trading using opposite North American and Black Mammoth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Black Mammoth 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 Black Mammoth will offset losses from the drop in Black Mammoth's long position.

The idea behind North American Financial and Black Mammoth Metals 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.