Correlation Between North American and Cactus

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

Diversification Opportunities for North American and Cactus

0.72

Correlation Coefficient

North American  Cactus

Poor diversification

The 3 months correlation between North and Cactus is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Cactus Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cactus Inc 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 Cactus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cactus Inc has no effect on the direction of North American i.e., North American and Cactus go up and down completely randomly.

Pair Corralation between North American and Cactus

Considering the 90-day investment horizon North American Construction is expected to generate 1.0 times more return on investment than Cactus. However, North American Construction is 1.0 times less risky than Cactus. It trades about 0.05 of its potential returns per unit of risk. Cactus Inc is currently generating about 0.03 per unit of risk. If you would invest  1,268  in North American Construction on September 19, 2024 and sell it today you would earn a total of  767.00  from holding North American Construction or generate 60.49% 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.  Cactus Inc

North American Const

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, North American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cactus Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cactus Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Cactus is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with North American and Cactus

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

The idea behind North American Construction and Cactus Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.