Correlation Between North American and Genertec Universal

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Can any of the company-specific risk be diversified away by investing in both North American and Genertec Universal 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 Genertec Universal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and Genertec Universal Medical, you can compare the effects of market volatilities on North American and Genertec Universal 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 Genertec Universal. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Genertec Universal.

Diversification Opportunities for North American and Genertec Universal

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between North and Genertec is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Genertec Universal Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genertec Universal 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 Construction are associated (or correlated) with Genertec Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genertec Universal has no effect on the direction of North American i.e., North American and Genertec Universal go up and down completely randomly.

Pair Corralation between North American and Genertec Universal

Assuming the 90 days horizon North American is expected to generate 1.63 times less return on investment than Genertec Universal. But when comparing it to its historical volatility, North American Construction is 1.02 times less risky than Genertec Universal. It trades about 0.08 of its potential returns per unit of risk. Genertec Universal Medical is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Genertec Universal Medical on October 25, 2024 and sell it today you would earn a total of  7.00  from holding Genertec Universal Medical or generate 13.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

North American Construction  vs.  Genertec Universal Medical

 Performance 
       Timeline  
North American Const 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 12 (%) 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.
Genertec Universal 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Genertec Universal Medical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Genertec Universal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

North American and Genertec Universal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with North American and Genertec Universal

The main advantage of trading using opposite North American and Genertec Universal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Genertec Universal 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 Genertec Universal will offset losses from the drop in Genertec Universal's long position.
The idea behind North American Construction and Genertec Universal Medical 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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