Correlation Between Northern High and Northern California

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

By analyzing existing cross correlation between Northern High Yield and Northern California Tax Exempt, you can compare the effects of market volatilities on Northern High and Northern California 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 Northern High with a short position of Northern California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern High and Northern California.

Diversification Opportunities for Northern High and Northern California

0.76

Correlation Coefficient

Northern High  Northern California

Poor diversification

The 3 months correlation between Northern and Northern is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Northern High Yield and Northern California Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern California Tax and Northern High 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 Northern High Yield are associated (or correlated) with Northern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern California Tax has no effect on the direction of Northern High i.e., Northern High and Northern California go up and down completely randomly.

Pair Corralation between Northern High and Northern California

Assuming the 90 days horizon Northern High Yield is expected to generate 1.13 times more return on investment than Northern California. However, Northern High is 1.13 times more volatile than Northern California Tax Exempt. It trades about 0.07 of its potential returns per unit of risk. Northern California Tax Exempt is currently generating about -0.05 per unit of risk. If you would invest  597.00  in Northern High Yield on December 28, 2024 and sell it today you would earn a total of  6.00  from holding Northern High Yield or generate 1.01% return on investment over 90 days.

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

Northern High Yield  vs.  Northern California Tax Exempt

Northern High Yield

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern High Yield are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Northern High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northern California Tax

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern California Tax Exempt has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Northern California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern High and Northern California

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

The idea behind Northern High Yield and Northern California Tax Exempt 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.