Correlation Between North American and ECN Capital

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

Diversification Opportunities for North American and ECN Capital

0.75

Correlation Coefficient

North American  ECN Capital

Poor diversification

The 3 months correlation between North and ECN is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and ECN Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECN Capital Corp 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 ECN Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECN Capital Corp has no effect on the direction of North American i.e., North American and ECN Capital go up and down completely randomly.

Pair Corralation between North American and ECN Capital

Assuming the 90 days trading horizon North American Financial is expected to under-perform the ECN Capital. But the stock apears to be less risky and, when comparing its historical volatility, North American Financial is 1.3 times less risky than ECN Capital. The stock trades about -0.07 of its potential returns per unit of risk. The ECN Capital Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  311.00  in ECN Capital Corp on December 22, 2024 and sell it today you would lose (29.00) from holding ECN Capital Corp or give up 9.32% of portfolio value over 90 days.

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

North American Financial  vs.  ECN Capital Corp

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.

ECN Capital Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECN Capital Corp 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.

Pair Trading with North American and ECN Capital

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

The idea behind North American Financial and ECN Capital Corp 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.