Correlation Between North American and Senvest Capital

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

Diversification Opportunities for North American and Senvest Capital

0.5

Correlation Coefficient

North American  Senvest Capital

Very weak diversification

The 3 months correlation between North and Senvest is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Senvest Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Senvest Capital 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 Senvest Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Senvest Capital has no effect on the direction of North American i.e., North American and Senvest Capital go up and down completely randomly.

Pair Corralation between North American and Senvest Capital

Assuming the 90 days trading horizon North American Financial is expected to generate 2.71 times more return on investment than Senvest Capital. However, North American is 2.71 times more volatile than Senvest Capital. It trades about 0.27 of its potential returns per unit of risk. Senvest Capital is currently generating about 0.2 per unit of risk. If you would invest  566.00  in North American Financial on September 19, 2024 and sell it today you would earn a total of  151.00  from holding North American Financial or generate 26.68% 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.  Senvest Capital

North American Financial

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 21 (%) 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.

Senvest Capital

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Senvest Capital are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Senvest Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with North American and Senvest Capital

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

The idea behind North American Financial and Senvest Capital 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.