Correlation Between North American and Media

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

Diversification Opportunities for North American and Media

0.51

Correlation Coefficient

North American  Media

Very weak diversification

The 3 months correlation between North and Media is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Media and Games in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Media and Games 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 Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Media and Games has no effect on the direction of North American i.e., North American and Media go up and down completely randomly.

Pair Corralation between North American and Media

Assuming the 90 days horizon North American Construction is expected to generate 0.78 times more return on investment than Media. However, North American Construction is 1.28 times less risky than Media. It trades about 0.13 of its potential returns per unit of risk. Media and Games is currently generating about 0.04 per unit of risk. If you would invest  1,580  in North American Construction on September 13, 2024 and sell it today you would earn a total of  350.00  from holding North American Construction or generate 22.15% return on investment over 90 days.

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

North American Construction  vs.  Media and Games

North American Const

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

Media and Games

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Media and Games are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Media may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with North American and Media

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

The idea behind North American Construction and Media and Games 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.