Correlation Between North Media and First Farms

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

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

Diversification Opportunities for North Media and First Farms

0.59

Correlation Coefficient

North Media  First Farms

Very weak diversification

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

Pair Corralation between North Media and First Farms

Assuming the 90 days trading horizon North Media AS is expected to under-perform the First Farms. But the stock apears to be less risky and, when comparing its historical volatility, North Media AS is 1.43 times less risky than First Farms. The stock trades about -0.42 of its potential returns per unit of risk. The First Farms AS is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,240  in First Farms AS on September 4, 2024 and sell it today you would lose (140.00) from holding First Farms AS or give up 1.93% of portfolio value over 90 days.

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

North Media AS  vs.  First Farms AS

North Media AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Media AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

First Farms AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Farms AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Farms is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with North Media and First Farms

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

The idea behind North Media AS and First Farms AS 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.