Correlation Between North American and National Energy

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

Diversification Opportunities for North American and National Energy

0.5

Correlation Coefficient

North American  National Energy

Very weak diversification

The 3 months correlation between North and National is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and National Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Energy Services 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 National Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Energy Services has no effect on the direction of North American i.e., North American and National Energy go up and down completely randomly.

Pair Corralation between North American and National Energy

Considering the 90-day investment horizon North American Construction is expected to under-perform the National Energy. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 1.03 times less risky than National Energy. The stock trades about -0.14 of its potential returns per unit of risk. The National Energy Services is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  824.00  in National Energy Services on December 20, 2024 and sell it today you would lose (24.00) from holding National Energy Services or give up 2.91% of portfolio value over 90 days.

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

North American Construction  vs.  National Energy Services

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

National Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, National Energy is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with North American and National Energy

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

The idea behind North American Construction and National Energy Services 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.