Correlation Between Active M and Northern Ultra

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

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

Diversification Opportunities for Active M and Northern Ultra

-0.37

Correlation Coefficient

Active M  Northern Ultra

Very good diversification

The 3 months correlation between Active and Northern is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Active M International and Northern Ultra Short Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Ultra Short and Active M 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 Active M International are associated (or correlated) with Northern Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Ultra Short has no effect on the direction of Active M i.e., Active M and Northern Ultra go up and down completely randomly.

Pair Corralation between Active M and Northern Ultra

Assuming the 90 days horizon Active M International is expected to under-perform the Northern Ultra. In addition to that, Active M is 139.97 times more volatile than Northern Ultra Short Fixed. It trades about -0.27 of its total potential returns per unit of risk. Northern Ultra Short Fixed is currently generating about -0.22 per unit of volatility. If you would invest  1,031  in Northern Ultra Short Fixed on September 24, 2024 and sell it today you would lose (1.00) from holding Northern Ultra Short Fixed or give up 0.1% of portfolio value over 90 days.

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

Active M International  vs.  Northern Ultra Short Fixed

Active M International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Active M International has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Northern Ultra Short

Risk-Adjusted Performance

0 of 100

Modest

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

Pair Trading with Active M and Northern Ultra

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

The idea behind Active M International and Northern Ultra Short Fixed 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.