Correlation Between North American and Canadian General

Can any of the company-specific risk be diversified away by investing in both North American and Canadian General 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 Canadian General 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 Canadian General Investments, you can compare the effects of market volatilities on North American and Canadian General 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 Canadian General. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Canadian General.

Diversification Opportunities for North American and Canadian General

0.77

Correlation Coefficient

North American  Canadian General

Poor diversification

The 3 months correlation between North and Canadian is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Canadian General Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian General Inv 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 Canadian General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian General Inv has no effect on the direction of North American i.e., North American and Canadian General go up and down completely randomly.

Pair Corralation between North American and Canadian General

Assuming the 90 days trading horizon North American Financial is expected to generate 1.37 times more return on investment than Canadian General. However, North American is 1.37 times more volatile than Canadian General Investments. It trades about 0.32 of its potential returns per unit of risk. Canadian General Investments is currently generating about 0.13 per unit of risk. If you would invest  558.00  in North American Financial on September 13, 2024 and sell it today you would earn a total of  166.00  from holding North American Financial or generate 29.75% return on investment over 90 days.

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

North American Financial  vs.  Canadian General Investments

North American Financial

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 25 (%) 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.

Canadian General Inv

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian General Investments are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Canadian General may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with North American and Canadian General

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

The idea behind North American Financial and Canadian General Investments 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.