Correlation Between National Bank and Falcon Energy

Can any of the company-specific risk be diversified away by investing in both National Bank and Falcon Energy 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 National Bank and Falcon Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Bank of and Falcon Energy Materials, you can compare the effects of market volatilities on National Bank and Falcon Energy 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 National Bank with a short position of Falcon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Falcon Energy.

Diversification Opportunities for National Bank and Falcon Energy

0.56

Correlation Coefficient

National Bank  Falcon Energy

Very weak diversification

The 3 months correlation between National and Falcon is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and Falcon Energy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Energy Materials and National Bank 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 National Bank of are associated (or correlated) with Falcon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Energy Materials has no effect on the direction of National Bank i.e., National Bank and Falcon Energy go up and down completely randomly.

Pair Corralation between National Bank and Falcon Energy

Assuming the 90 days trading horizon National Bank of is expected to generate 0.16 times more return on investment than Falcon Energy. However, National Bank of is 6.39 times less risky than Falcon Energy. It trades about 0.24 of its potential returns per unit of risk. Falcon Energy Materials is currently generating about -0.46 per unit of risk. If you would invest  2,365  in National Bank of on September 17, 2024 and sell it today you would earn a total of  48.00  from holding National Bank of or generate 2.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

National Bank of  vs.  Falcon Energy Materials

National Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, National Bank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Falcon Energy Materials

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Energy Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Falcon Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Bank and Falcon Energy

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

The idea behind National Bank of and Falcon Energy Materials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.