Correlation Between Active M and Northern E

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

By analyzing existing cross correlation between Active M Emerging and Northern E Bond, you can compare the effects of market volatilities on Active M and Northern E 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 E. Check out your portfolio center. Please also check ongoing floating volatility patterns of Active M and Northern E.

Diversification Opportunities for Active M and Northern E

0.67

Correlation Coefficient

Active M  Northern E

Poor diversification

The 3 months correlation between Active and Northern is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Active M Emerging and Northern E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern E Bond 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 Emerging are associated (or correlated) with Northern E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern E Bond has no effect on the direction of Active M i.e., Active M and Northern E go up and down completely randomly.

Pair Corralation between Active M and Northern E

Assuming the 90 days horizon Active M Emerging is expected to under-perform the Northern E. In addition to that, Active M is 2.43 times more volatile than Northern E Bond. It trades about -0.16 of its total potential returns per unit of risk. Northern E Bond is currently generating about -0.32 per unit of volatility. If you would invest  892.00  in Northern E Bond on September 24, 2024 and sell it today you would lose (14.00) from holding Northern E Bond or give up 1.57% of portfolio value over 90 days.

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

Active M Emerging  vs.  Northern E Bond

Active M Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Northern E Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern E Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Northern E 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 E

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

The idea behind Active M Emerging and Northern E Bond 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.