Correlation Between North American and Gossan Resources

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

Diversification Opportunities for North American and Gossan Resources

-0.59

Correlation Coefficient

North American  Gossan Resources

Excellent diversification

The 3 months correlation between North and Gossan is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Gossan Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gossan Resources 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 Gossan Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gossan Resources has no effect on the direction of North American i.e., North American and Gossan Resources go up and down completely randomly.

Pair Corralation between North American and Gossan Resources

Assuming the 90 days trading horizon North American Construction is expected to generate 0.19 times more return on investment than Gossan Resources. However, North American Construction is 5.4 times less risky than Gossan Resources. It trades about 0.15 of its potential returns per unit of risk. Gossan Resources is currently generating about 0.02 per unit of risk. If you would invest  2,463  in North American Construction on September 26, 2024 and sell it today you would earn a total of  607.00  from holding North American Construction or generate 24.64% return on investment over 90 days.

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

North American Construction  vs.  Gossan Resources

North American Const

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Gossan Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gossan Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Gossan Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Gossan Resources

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

The idea behind North American Construction and Gossan Resources 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.