Correlation Between North American and Central Europe

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

Diversification Opportunities for North American and Central Europe

-0.52

Correlation Coefficient

North American  Central Europe

Excellent diversification

The 3 months correlation between North and Central is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Central Europe Russia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Europe Russia 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 Central Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Europe Russia has no effect on the direction of North American i.e., North American and Central Europe go up and down completely randomly.

Pair Corralation between North American and Central Europe

Assuming the 90 days horizon North American Financial is expected to under-perform the Central Europe. But the pink sheet apears to be less risky and, when comparing its historical volatility, North American Financial is 1.06 times less risky than Central Europe. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Central Europe Russia is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,127  in Central Europe Russia on December 29, 2024 and sell it today you would earn a total of  353.00  from holding Central Europe Russia or generate 31.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	80.33%
Values	Daily Returns

North American Financial  vs.  Central Europe Russia

North American Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Central Europe Russia

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Central Europe Russia are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather fragile technical and fundamental indicators, Central Europe exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Central Europe

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

The idea behind North American Financial and Central Europe Russia 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.