Correlation Between Leading Edge and North American

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

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

Diversification Opportunities for Leading Edge and North American

-0.77

Correlation Coefficient

Leading Edge  North American

Pay attention - limited upside

The 3 months correlation between Leading and North is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const and Leading Edge 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 Leading Edge Materials are associated (or correlated) with North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Leading Edge i.e., Leading Edge and North American go up and down completely randomly.

Pair Corralation between Leading Edge and North American

Assuming the 90 days horizon Leading Edge Materials is expected to under-perform the North American. In addition to that, Leading Edge is 2.74 times more volatile than North American Construction. It trades about -0.01 of its total potential returns per unit of risk. North American Construction is currently generating about 0.15 per unit of volatility. If you would invest  2,862  in North American Construction on October 9, 2024 and sell it today you would earn a total of  257.00  from holding North American Construction or generate 8.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

Leading Edge Materials  vs.  North American Construction

Leading Edge Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leading Edge Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Leading Edge is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

North American Const

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leading Edge and North American

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

The idea behind Leading Edge Materials and North American Construction 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.