Correlation Between North American and Carebook Technologies

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

Diversification Opportunities for North American and Carebook Technologies

-0.09

Correlation Coefficient

North American  Carebook Technologies

Good diversification

The 3 months correlation between North and Carebook is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Carebook Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carebook Technologies 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 Carebook Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carebook Technologies has no effect on the direction of North American i.e., North American and Carebook Technologies go up and down completely randomly.

Pair Corralation between North American and Carebook Technologies

Assuming the 90 days trading horizon North American Construction is expected to under-perform the Carebook Technologies. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 13.21 times less risky than Carebook Technologies. The stock trades about -0.05 of its potential returns per unit of risk. The Carebook Technologies is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  4.50  in Carebook Technologies on October 24, 2024 and sell it today you would earn a total of  5.00  from holding Carebook Technologies or generate 111.11% 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.  Carebook Technologies

North American Const

Risk-Adjusted Performance

12 of 100

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. 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.

Carebook Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carebook Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental drivers, Carebook Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Carebook Technologies

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

The idea behind North American Construction and Carebook Technologies 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.