Correlation Between International Flavors and Northern Technologies

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

By analyzing existing cross correlation between International Flavors Fragrances and Northern Technologies, you can compare the effects of market volatilities on International Flavors and Northern Technologies 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 International Flavors with a short position of Northern Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Flavors and Northern Technologies.

Diversification Opportunities for International Flavors and Northern Technologies

0.29

Correlation Coefficient

International Flavors  Northern Technologies

Modest diversification

The 3 months correlation between International and Northern is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding International Flavors Fragranc and Northern Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Technologies and International Flavors 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 International Flavors Fragrances are associated (or correlated) with Northern Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Technologies has no effect on the direction of International Flavors i.e., International Flavors and Northern Technologies go up and down completely randomly.

Pair Corralation between International Flavors and Northern Technologies

Considering the 90-day investment horizon International Flavors Fragrances is expected to generate 0.39 times more return on investment than Northern Technologies. However, International Flavors Fragrances is 2.57 times less risky than Northern Technologies. It trades about -0.06 of its potential returns per unit of risk. Northern Technologies is currently generating about -0.14 per unit of risk. If you would invest  8,852  in International Flavors Fragrances on November 19, 2024 and sell it today you would lose (294.00) from holding International Flavors Fragrances or give up 3.32% of portfolio value over 90 days.

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

International Flavors Fragranc  vs.  Northern Technologies

International Flavors

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Flavors Fragrances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, International Flavors is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Northern Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with International Flavors and Northern Technologies

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

The idea behind International Flavors Fragrances and Northern Technologies 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.