Correlation Between North American and Profound Medical

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

Diversification Opportunities for North American and Profound Medical

0.27

Correlation Coefficient

North American  Profound Medical

Modest diversification

The 3 months correlation between North and Profound is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Profound Medical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Profound Medical Corp 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 Profound Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Profound Medical Corp has no effect on the direction of North American i.e., North American and Profound Medical go up and down completely randomly.

Pair Corralation between North American and Profound Medical

Assuming the 90 days trading horizon North American Construction is expected to generate 0.83 times more return on investment than Profound Medical. However, North American Construction is 1.21 times less risky than Profound Medical. It trades about 0.14 of its potential returns per unit of risk. Profound Medical Corp is currently generating about 0.05 per unit of risk. If you would invest  2,573  in North American Construction on October 10, 2024 and sell it today you would earn a total of  585.00  from holding North American Construction or generate 22.74% return on investment over 90 days.

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

North American Construction  vs.  Profound Medical Corp

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.

Profound Medical Corp

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with North American and Profound Medical

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

The idea behind North American Construction and Profound Medical Corp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .