Correlation Between North American and Canadian Life

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

Diversification Opportunities for North American and Canadian Life

0.31

Correlation Coefficient

North American  Canadian Life

Weak diversification

The 3 months correlation between North and Canadian is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Canadian Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Life Companies 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 Canadian Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Life Companies has no effect on the direction of North American i.e., North American and Canadian Life go up and down completely randomly.

Pair Corralation between North American and Canadian Life

Assuming the 90 days trading horizon North American Financial is expected to under-perform the Canadian Life. But the stock apears to be less risky and, when comparing its historical volatility, North American Financial is 1.05 times less risky than Canadian Life. The stock trades about -0.07 of its potential returns per unit of risk. The Canadian Life Companies is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  667.00  in Canadian Life Companies on December 30, 2024 and sell it today you would lose (56.00) from holding Canadian Life Companies or give up 8.4% of portfolio value over 90 days.

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

North American Financial  vs.  Canadian Life Companies

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.

Canadian Life Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Life Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental 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 Canadian Life

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

The idea behind North American Financial and Canadian Life Companies 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.