Correlation Between MidCap Financial and Northern Data

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

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

Diversification Opportunities for MidCap Financial and Northern Data

0.88

Correlation Coefficient

MidCap Financial  Northern Data

Very poor diversification

The 3 months correlation between MidCap and Northern is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Northern Data AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Data AG and MidCap Financial 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 MidCap Financial Investment are associated (or correlated) with Northern Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Data AG has no effect on the direction of MidCap Financial i.e., MidCap Financial and Northern Data go up and down completely randomly.

Pair Corralation between MidCap Financial and Northern Data

Assuming the 90 days trading horizon MidCap Financial is expected to generate 6.01 times less return on investment than Northern Data. But when comparing it to its historical volatility, MidCap Financial Investment is 4.52 times less risky than Northern Data. It trades about 0.2 of its potential returns per unit of risk. Northern Data AG is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,600  in Northern Data AG on October 8, 2024 and sell it today you would earn a total of  2,560  from holding Northern Data AG or generate 98.46% return on investment over 90 days.

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

MidCap Financial Investment  vs.  Northern Data AG

MidCap Financial Inv

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MidCap Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Northern Data AG

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Data AG are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Northern Data displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MidCap Financial and Northern Data

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

The idea behind MidCap Financial Investment and Northern Data AG 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.

Check out your portfolio center.

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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.