Correlation Between North American and RiverNorthDoubleLine

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

Diversification Opportunities for North American and RiverNorthDoubleLine

-0.65

Correlation Coefficient

North American  RiverNorthDoubleLine

Excellent diversification

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

Pair Corralation between North American and RiverNorthDoubleLine

Assuming the 90 days horizon North American Financial is expected to generate 5.17 times more return on investment than RiverNorthDoubleLine. However, North American is 5.17 times more volatile than RiverNorthDoubleLine Strategic Opportunity. It trades about 0.19 of its potential returns per unit of risk. RiverNorthDoubleLine Strategic Opportunity is currently generating about -0.04 per unit of risk. If you would invest  385.00  in North American Financial on September 1, 2024 and sell it today you would earn a total of  146.00  from holding North American Financial or generate 37.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	92.06%
Values	Daily Returns

North American Financial  vs.  RiverNorthDoubleLine Strategic

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

RiverNorthDoubleLine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RiverNorthDoubleLine Strategic Opportunity has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, RiverNorthDoubleLine is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with North American and RiverNorthDoubleLine

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

The idea behind North American Financial and RiverNorthDoubleLine Strategic Opportunity 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.