Correlation Between North American and Financial

Can any of the company-specific risk be diversified away by investing in both North American and Financial 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 Financial 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 Financial 15 Split, you can compare the effects of market volatilities on North American and Financial 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 Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Financial.

Diversification Opportunities for North American and Financial

0.98

Correlation Coefficient

North American  Financial

Almost no diversification

The 3 months correlation between North and Financial is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Financial 15 Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial 15 Split 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 Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial 15 Split has no effect on the direction of North American i.e., North American and Financial go up and down completely randomly.

Pair Corralation between North American and Financial

Assuming the 90 days trading horizon North American Financial is expected to generate 1.4 times more return on investment than Financial. However, North American is 1.4 times more volatile than Financial 15 Split. It trades about 0.33 of its potential returns per unit of risk. Financial 15 Split is currently generating about 0.36 per unit of risk. If you would invest  567.00  in North American Financial on August 31, 2024 and sell it today you would earn a total of  185.00  from holding North American Financial or generate 32.63% return on investment over 90 days.

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

North American Financial  vs.  Financial 15 Split

North American Financial

Risk-Adjusted Performance

25 of 100

Strong

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.

Financial 15 Split

Risk-Adjusted Performance

28 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Financial

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

The idea behind North American Financial and Financial 15 Split 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.