Correlation Between North American and Sego Resources

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

Diversification Opportunities for North American and Sego Resources

-0.31

Correlation Coefficient

North American  Sego Resources

Very good diversification

The 3 months correlation between North and Sego is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Sego Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sego 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 Sego Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sego Resources has no effect on the direction of North American i.e., North American and Sego Resources go up and down completely randomly.

Pair Corralation between North American and Sego Resources

Assuming the 90 days trading horizon North American Construction is expected to under-perform the Sego Resources. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 5.62 times less risky than Sego Resources. The stock trades about -0.02 of its potential returns per unit of risk. The Sego Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Sego Resources on October 11, 2024 and sell it today you would earn a total of  0.50  from holding Sego Resources or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

North American Construction  vs.  Sego Resources

North American Const

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 6 (%) 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.

Sego Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sego Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Sego Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Sego Resources

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

The idea behind North American Construction and Sego 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.