Correlation Between North American and CBH

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

Diversification Opportunities for North American and CBH

0.94

Correlation Coefficient

North American  CBH

Almost no diversification

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

Pair Corralation between North American and CBH

If you would invest  385.00  in North American Financial on September 3, 2024 and sell it today you would earn a total of  157.00  from holding North American Financial or generate 40.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	1.69%
Values	Daily Returns

North American Financial  vs.  CBH

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. Despite nearly weak basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

CBH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CBH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, CBH is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with North American and CBH

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

The idea behind North American Financial and CBH 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.