Correlation Between North American and Sienna Resources

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

Diversification Opportunities for North American and Sienna Resources

-0.49

Correlation Coefficient

North American  Sienna Resources

Very good diversification

The 3 months correlation between North and Sienna is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Sienna Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sienna Resources 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 Sienna Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sienna Resources has no effect on the direction of North American i.e., North American and Sienna Resources go up and down completely randomly.

Pair Corralation between North American and Sienna Resources

Assuming the 90 days trading horizon North American is expected to generate 1.21 times less return on investment than Sienna Resources. But when comparing it to its historical volatility, North American Financial is 9.34 times less risky than Sienna Resources. It trades about 0.2 of its potential returns per unit of risk. Sienna Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Sienna Resources on October 6, 2024 and sell it today you would lose (1.50) from holding Sienna Resources or give up 37.5% of portfolio value over 90 days.

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

North American Financial  vs.  Sienna Resources

North American Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Sienna Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sienna Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sienna Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Sienna Resources

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

The idea behind North American Financial and Sienna Resources 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.