Correlation Between North American and US Silica

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

Diversification Opportunities for North American and US Silica

-0.1

Correlation Coefficient

North American  US Silica

Good diversification

The 3 months correlation between North and SLCA is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and US Silica Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Silica Holdings 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 US Silica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Silica Holdings has no effect on the direction of North American i.e., North American and US Silica go up and down completely randomly.

Pair Corralation between North American and US Silica

Considering the 90-day investment horizon North American Construction is expected to generate 0.25 times more return on investment than US Silica. However, North American Construction is 4.01 times less risky than US Silica. It trades about 0.01 of its potential returns per unit of risk. US Silica Holdings is currently generating about -0.05 per unit of risk. If you would invest  2,099  in North American Construction on September 19, 2024 and sell it today you would lose (11.00) from holding North American Construction or give up 0.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	60.89%
Values	Daily Returns

North American Construction  vs.  US Silica Holdings

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. Despite somewhat weak basic indicators, North American sustained solid returns over the last few months and may actually be approaching a breakup point.

US Silica Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Silica Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, US Silica is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with North American and US Silica

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

The idea behind North American Construction and US Silica Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.