Correlation Between M3 Brigade and Northern Star

Can any of the company-specific risk be diversified away by investing in both M3 Brigade and Northern Star 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 M3 Brigade and Northern Star into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between M3 Brigade Acquisition V and Northern Star Investment, you can compare the effects of market volatilities on M3 Brigade and Northern Star 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 M3 Brigade with a short position of Northern Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of M3 Brigade and Northern Star.

Diversification Opportunities for M3 Brigade and Northern Star

0.68

Correlation Coefficient

M3 Brigade  Northern Star

Poor diversification

The 3 months correlation between MBAV and Northern is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding M3 Brigade Acquisition V and Northern Star Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Investment and M3 Brigade 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 M3 Brigade Acquisition V are associated (or correlated) with Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Investment has no effect on the direction of M3 Brigade i.e., M3 Brigade and Northern Star go up and down completely randomly.

Pair Corralation between M3 Brigade and Northern Star

Given the investment horizon of 90 days M3 Brigade is expected to generate 1.68 times less return on investment than Northern Star. But when comparing it to its historical volatility, M3 Brigade Acquisition V is 3.53 times less risky than Northern Star. It trades about 0.13 of its potential returns per unit of risk. Northern Star Investment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,010  in Northern Star Investment on October 12, 2024 and sell it today you would earn a total of  22.00  from holding Northern Star Investment or generate 2.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	61.11%
Values	Daily Returns

M3 Brigade Acquisition V  vs.  Northern Star Investment

M3 Brigade Acquisition

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M3 Brigade Acquisition V are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, M3 Brigade is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Northern Star Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Star Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Northern Star is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with M3 Brigade and Northern Star

The main advantage of trading using opposite M3 Brigade and Northern Star positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M3 Brigade position performs unexpectedly, Northern Star 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 Star will offset losses from the drop in Northern Star's long position.

The idea behind M3 Brigade Acquisition V and Northern Star Investment 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.