Correlation Between North West and CCL Industries

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

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

Diversification Opportunities for North West and CCL Industries

-0.11

Correlation Coefficient

North West  CCL Industries

Good diversification

The 3 months correlation between North and CCL is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding North West and CCL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CCL Industries and North West 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 West are associated (or correlated) with CCL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CCL Industries has no effect on the direction of North West i.e., North West and CCL Industries go up and down completely randomly.

Pair Corralation between North West and CCL Industries

Assuming the 90 days trading horizon North West is expected to generate 1.05 times more return on investment than CCL Industries. However, North West is 1.05 times more volatile than CCL Industries. It trades about 0.05 of its potential returns per unit of risk. CCL Industries is currently generating about -0.06 per unit of risk. If you would invest  5,075  in North West on September 9, 2024 and sell it today you would earn a total of  180.00  from holding North West or generate 3.55% return on investment over 90 days.

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

North West  vs.  CCL Industries

North West

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in North West are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, North West is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

CCL Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CCL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CCL Industries is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with North West and CCL Industries

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

The idea behind North West and CCL Industries 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.