Correlation Between North American and Martinrea International

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

Diversification Opportunities for North American and Martinrea International

0.89

Correlation Coefficient

North American  Martinrea International

Very poor diversification

The 3 months correlation between North and Martinrea is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Martinrea International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Martinrea International 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 Martinrea International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Martinrea International has no effect on the direction of North American i.e., North American and Martinrea International go up and down completely randomly.

Pair Corralation between North American and Martinrea International

Assuming the 90 days trading horizon North American Financial is expected to generate 1.27 times more return on investment than Martinrea International. However, North American is 1.27 times more volatile than Martinrea International. It trades about -0.07 of its potential returns per unit of risk. Martinrea International is currently generating about -0.19 per unit of risk. If you would invest  677.00  in North American Financial on December 30, 2024 and sell it today you would lose (65.00) from holding North American Financial or give up 9.6% of portfolio value over 90 days.

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

North American Financial  vs.  Martinrea International

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.

Martinrea International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Martinrea International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with North American and Martinrea International

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

The idea behind North American Financial and Martinrea International 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.