Correlation Between Norstar and Castro

Can any of the company-specific risk be diversified away by investing in both Norstar and Castro 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 Norstar and Castro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norstar and Castro, you can compare the effects of market volatilities on Norstar and Castro 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 Norstar with a short position of Castro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norstar and Castro.

Diversification Opportunities for Norstar and Castro

-0.55

Correlation Coefficient

Norstar  Castro

Excellent diversification

The 3 months correlation between Norstar and Castro is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Norstar and Castro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castro and Norstar 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 Norstar are associated (or correlated) with Castro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castro has no effect on the direction of Norstar i.e., Norstar and Castro go up and down completely randomly.

Pair Corralation between Norstar and Castro

Assuming the 90 days trading horizon Norstar is expected to under-perform the Castro. But the stock apears to be less risky and, when comparing its historical volatility, Norstar is 1.08 times less risky than Castro. The stock trades about -0.18 of its potential returns per unit of risk. The Castro is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,072,000  in Castro on December 2, 2024 and sell it today you would earn a total of  161,000  from holding Castro or generate 15.02% return on investment over 90 days.

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

Norstar  vs.  Castro

Norstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Norstar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain 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.

Castro

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Castro are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Castro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Norstar and Castro

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

The idea behind Norstar and Castro 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.