Correlation Between North American and Lycos Energy

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

Diversification Opportunities for North American and Lycos Energy

-0.49

Correlation Coefficient

North American  Lycos Energy

Very good diversification

The 3 months correlation between North and Lycos is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Lycos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lycos Energy 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 Lycos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lycos Energy has no effect on the direction of North American i.e., North American and Lycos Energy go up and down completely randomly.

Pair Corralation between North American and Lycos Energy

Assuming the 90 days trading horizon North American is expected to generate 19.82 times less return on investment than Lycos Energy. But when comparing it to its historical volatility, North American Financial is 19.12 times less risky than Lycos Energy. It trades about 0.05 of its potential returns per unit of risk. Lycos Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  432.00  in Lycos Energy on October 5, 2024 and sell it today you would lose (162.00) from holding Lycos Energy or give up 37.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

North American Financial  vs.  Lycos Energy

North American Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Lycos Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lycos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with North American and Lycos Energy

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

The idea behind North American Financial and Lycos Energy 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.