Correlation Between North American and Prime Dividend

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

Diversification Opportunities for North American and Prime Dividend

0.94

Correlation Coefficient

North American  Prime Dividend

Almost no diversification

The 3 months correlation between North and Prime is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Prime Dividend Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Dividend 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 Prime Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Dividend Corp has no effect on the direction of North American i.e., North American and Prime Dividend go up and down completely randomly.

Pair Corralation between North American and Prime Dividend

Assuming the 90 days trading horizon North American Financial is expected to generate 0.83 times more return on investment than Prime Dividend. However, North American Financial is 1.2 times less risky than Prime Dividend. It trades about 0.07 of its potential returns per unit of risk. Prime Dividend Corp is currently generating about 0.02 per unit of risk. If you would invest  382.00  in North American Financial on September 5, 2024 and sell it today you would earn a total of  352.00  from holding North American Financial or generate 92.15% return on investment over 90 days.

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

North American Financial  vs.  Prime Dividend Corp

North American Financial

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 24 (%) 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.

Prime Dividend Corp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Dividend Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Prime Dividend displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Prime Dividend

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

The idea behind North American Financial and Prime Dividend 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.