Correlation Between North American and BTB Real

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

Diversification Opportunities for North American and BTB Real

-0.79

Correlation Coefficient

North American  BTB Real

Pay attention - limited upside

The 3 months correlation between North and BTB is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and BTB Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTB Real Estate 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 BTB Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTB Real Estate has no effect on the direction of North American i.e., North American and BTB Real go up and down completely randomly.

Pair Corralation between North American and BTB Real

Assuming the 90 days trading horizon North American Construction is expected to generate 1.98 times more return on investment than BTB Real. However, North American is 1.98 times more volatile than BTB Real Estate. It trades about 0.35 of its potential returns per unit of risk. BTB Real Estate is currently generating about -0.29 per unit of risk. If you would invest  2,723  in North American Construction on September 27, 2024 and sell it today you would earn a total of  347.00  from holding North American Construction or generate 12.74% return on investment over 90 days.

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

North American Construction  vs.  BTB Real Estate

North American Const

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 10 (%) 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.

BTB Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BTB Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BTB Real is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with North American and BTB Real

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

The idea behind North American Construction and BTB Real Estate 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 Global Correlations module to find global opportunities by holding instruments from different markets.