Correlation Between First National and Postmedia Network

Can any of the company-specific risk be diversified away by investing in both First National and Postmedia Network 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 First National and Postmedia Network into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First National Financial and Postmedia Network Canada, you can compare the effects of market volatilities on First National and Postmedia Network 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 First National with a short position of Postmedia Network. Check out your portfolio center. Please also check ongoing floating volatility patterns of First National and Postmedia Network.

Diversification Opportunities for First National and Postmedia Network

-0.65

Correlation Coefficient

First National  Postmedia Network

Excellent diversification

The 3 months correlation between First and Postmedia is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding First National Financial and Postmedia Network Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Postmedia Network Canada and First National 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 First National Financial are associated (or correlated) with Postmedia Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Postmedia Network Canada has no effect on the direction of First National i.e., First National and Postmedia Network go up and down completely randomly.

Pair Corralation between First National and Postmedia Network

Assuming the 90 days trading horizon First National Financial is expected to generate 0.62 times more return on investment than Postmedia Network. However, First National Financial is 1.62 times less risky than Postmedia Network. It trades about 0.1 of its potential returns per unit of risk. Postmedia Network Canada is currently generating about -0.05 per unit of risk. If you would invest  1,450  in First National Financial on October 6, 2024 and sell it today you would earn a total of  125.00  from holding First National Financial or generate 8.62% return on investment over 90 days.

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

First National Financial  vs.  Postmedia Network Canada

First National Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First National Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, First National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Postmedia Network Canada

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Postmedia Network Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with First National and Postmedia Network

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

The idea behind First National Financial and Postmedia Network Canada 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.