Correlation Between North American and Xtract One

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

Diversification Opportunities for North American and Xtract One

0.64

Correlation Coefficient

North American  Xtract One

Poor diversification

The 3 months correlation between North and Xtract is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Xtract One Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtract One 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 Xtract One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtract One Technologies has no effect on the direction of North American i.e., North American and Xtract One go up and down completely randomly.

Pair Corralation between North American and Xtract One

Assuming the 90 days trading horizon North American Construction is expected to under-perform the Xtract One. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 2.02 times less risky than Xtract One. The stock trades about -0.21 of its potential returns per unit of risk. The Xtract One Technologies is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Xtract One Technologies on December 22, 2024 and sell it today you would earn a total of  0.00  from holding Xtract One Technologies or generate 0.0% return on investment over 90 days.

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

North American Construction  vs.  Xtract One Technologies

North American Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Xtract One Technologies

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtract One Technologies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Xtract One is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with North American and Xtract One

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

The idea behind North American Construction and Xtract One 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.