Correlation Between North American and US Financial

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

Diversification Opportunities for North American and US Financial

0.56

Correlation Coefficient

North American  US Financial

Very weak diversification

The 3 months correlation between North and FTU-PB is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and US Financial 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Financial 15 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 US Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Financial 15 has no effect on the direction of North American i.e., North American and US Financial go up and down completely randomly.

Pair Corralation between North American and US Financial

Assuming the 90 days trading horizon North American Financial is expected to under-perform the US Financial. In addition to that, North American is 1.05 times more volatile than US Financial 15. It trades about -0.07 of its total potential returns per unit of risk. US Financial 15 is currently generating about 0.0 per unit of volatility. If you would invest  738.00  in US Financial 15 on December 30, 2024 and sell it today you would lose (5.00) from holding US Financial 15 or give up 0.68% of portfolio value over 90 days.

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

North American Financial  vs.  US Financial 15

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.

US Financial 15

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Financial 15 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, US Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with North American and US Financial

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

The idea behind North American Financial and US Financial 15 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.