Correlation Between North American and Canso Credit

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

Diversification Opportunities for North American and Canso Credit

-0.35

Correlation Coefficient

North American  Canso Credit

Very good diversification

The 3 months correlation between North and Canso is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Canso Credit Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canso Credit Trust 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 Canso Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canso Credit Trust has no effect on the direction of North American i.e., North American and Canso Credit go up and down completely randomly.

Pair Corralation between North American and Canso Credit

Assuming the 90 days trading horizon North American Financial is expected to under-perform the Canso Credit. In addition to that, North American is 3.64 times more volatile than Canso Credit Trust. It trades about -0.07 of its total potential returns per unit of risk. Canso Credit Trust is currently generating about 0.03 per unit of volatility. If you would invest  1,580  in Canso Credit Trust on December 30, 2024 and sell it today you would earn a total of  18.00  from holding Canso Credit Trust or generate 1.14% return on investment over 90 days.

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

North American Financial  vs.  Canso Credit Trust

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.

Canso Credit Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canso Credit Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Canso Credit 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 Canso Credit

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

The idea behind North American Financial and Canso Credit Trust 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.