Correlation Between North American and Charter Communications

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

Diversification Opportunities for North American and Charter Communications

-0.12

Correlation Coefficient

North American  Charter Communications

Good diversification

The 3 months correlation between North and Charter is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of North American i.e., North American and Charter Communications go up and down completely randomly.

Pair Corralation between North American and Charter Communications

Assuming the 90 days horizon North American Construction is expected to under-perform the Charter Communications. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 1.31 times less risky than Charter Communications. The stock trades about -0.38 of its potential returns per unit of risk. The Charter Communications is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  33,035  in Charter Communications on December 5, 2024 and sell it today you would earn a total of  1,705  from holding Charter Communications or generate 5.16% return on investment over 90 days.

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

North American Construction  vs.  Charter Communications

North American Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Construction 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.

Charter Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with North American and Charter Communications

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

The idea behind North American Construction and Charter Communications 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.