Correlation Between North American and Overactive Media

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

Diversification Opportunities for North American and Overactive Media

0.58

Correlation Coefficient

North American  Overactive Media

Very weak diversification

The 3 months correlation between North and Overactive is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Overactive Media Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overactive Media Corp 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 Overactive Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overactive Media Corp has no effect on the direction of North American i.e., North American and Overactive Media go up and down completely randomly.

Pair Corralation between North American and Overactive Media

Assuming the 90 days trading horizon North American is expected to generate 1.52 times less return on investment than Overactive Media. But when comparing it to its historical volatility, North American Financial is 3.5 times less risky than Overactive Media. It trades about 0.3 of its potential returns per unit of risk. Overactive Media Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Overactive Media Corp on September 15, 2024 and sell it today you would earn a total of  8.00  from holding Overactive Media Corp or generate 40.0% return on investment over 90 days.

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

North American Financial  vs.  Overactive Media Corp

North American Financial

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 23 (%) 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.

Overactive Media Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Overactive Media Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Overactive Media showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Overactive Media

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

The idea behind North American Financial and Overactive Media Corp 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.