Correlation Between Apple and Northern Shield

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

By analyzing existing cross correlation between Apple Inc CDR and Northern Shield Resources, you can compare the effects of market volatilities on Apple and Northern Shield 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 Apple with a short position of Northern Shield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and Northern Shield.

Diversification Opportunities for Apple and Northern Shield

-0.38

Correlation Coefficient

Apple  Northern Shield

Very good diversification

The 3 months correlation between Apple and Northern is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc CDR and Northern Shield Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Shield Resources and Apple 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 Apple Inc CDR are associated (or correlated) with Northern Shield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Shield Resources has no effect on the direction of Apple i.e., Apple and Northern Shield go up and down completely randomly.

Pair Corralation between Apple and Northern Shield

Assuming the 90 days trading horizon Apple is expected to generate 4.52 times less return on investment than Northern Shield. But when comparing it to its historical volatility, Apple Inc CDR is 7.92 times less risky than Northern Shield. It trades about 0.08 of its potential returns per unit of risk. Northern Shield Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Northern Shield Resources on September 1, 2024 and sell it today you would earn a total of  0.00  from holding Northern Shield Resources or generate 0.0% return on investment over 90 days.

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

Apple Inc CDR  vs.  Northern Shield Resources

Apple Inc CDR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc CDR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Apple is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Northern Shield Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Shield Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Northern Shield showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Apple and Northern Shield

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

The idea behind Apple Inc CDR and Northern Shield 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.