Correlation Between North American and PJX Resources

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

Diversification Opportunities for North American and PJX Resources

-0.22

Correlation Coefficient

North American  PJX Resources

Very good diversification

The 3 months correlation between North and PJX is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and PJX Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PJX Resources 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 PJX Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PJX Resources has no effect on the direction of North American i.e., North American and PJX Resources go up and down completely randomly.

Pair Corralation between North American and PJX Resources

Assuming the 90 days trading horizon North American Construction is expected to under-perform the PJX Resources. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 6.74 times less risky than PJX Resources. The stock trades about -0.08 of its potential returns per unit of risk. The PJX Resources is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  11.00  in PJX Resources on October 22, 2024 and sell it today you would earn a total of  7.00  from holding PJX Resources or generate 63.64% 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.  PJX Resources

North American Const

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 11 (%) 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.

PJX Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PJX Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, PJX Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and PJX Resources

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

The idea behind North American Construction and PJX Resources 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.