Correlation Between Finning International and North West

Can any of the company-specific risk be diversified away by investing in both Finning International and North West 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 Finning International and North West into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Finning International and North West, you can compare the effects of market volatilities on Finning International and North West 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 Finning International with a short position of North West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Finning International and North West.

Diversification Opportunities for Finning International and North West

-0.01

Correlation Coefficient

Finning International  North West

Good diversification

The 3 months correlation between Finning and North is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Finning International and North West in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North West and Finning International 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 Finning International are associated (or correlated) with North West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North West has no effect on the direction of Finning International i.e., Finning International and North West go up and down completely randomly.

Pair Corralation between Finning International and North West

Assuming the 90 days trading horizon Finning International is expected to generate 1.63 times more return on investment than North West. However, Finning International is 1.63 times more volatile than North West. It trades about 0.06 of its potential returns per unit of risk. North West is currently generating about 0.05 per unit of risk. If you would invest  3,729  in Finning International on September 9, 2024 and sell it today you would earn a total of  224.00  from holding Finning International or generate 6.01% return on investment over 90 days.

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

Finning International  vs.  North West

Finning International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Finning International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Finning International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

North West

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in North West are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, North West is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Finning International and North West

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

The idea behind Finning International and North West 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.