Correlation Between North American and Salesforce

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

Diversification Opportunities for North American and Salesforce

0.88

Correlation Coefficient

North American  Salesforce

Very poor diversification

The 3 months correlation between North and Salesforce is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and SalesforceCom CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SalesforceCom CDR 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SalesforceCom CDR has no effect on the direction of North American i.e., North American and Salesforce go up and down completely randomly.

Pair Corralation between North American and Salesforce

Assuming the 90 days trading horizon North American Financial is expected to generate 1.11 times more return on investment than Salesforce. However, North American is 1.11 times more volatile than SalesforceCom CDR. It trades about -0.07 of its potential returns per unit of risk. SalesforceCom CDR is currently generating about -0.18 per unit of risk. If you would invest  677.00  in North American Financial on December 29, 2024 and sell it today you would lose (65.00) from holding North American Financial or give up 9.6% of portfolio value over 90 days.

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

North American Financial  vs.  SalesforceCom CDR

North American Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

SalesforceCom CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days SalesforceCom CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with North American and Salesforce

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

The idea behind North American Financial and SalesforceCom CDR 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.