Correlation Between Northern Bond and Active M

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

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

Diversification Opportunities for Northern Bond and Active M

0.87

Correlation Coefficient

Northern Bond  Active M

Very poor diversification

The 3 months correlation between Northern and Active is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Northern Bond Index and Active M International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Active M International and Northern Bond 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 Bond Index are associated (or correlated) with Active M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Active M International has no effect on the direction of Northern Bond i.e., Northern Bond and Active M go up and down completely randomly.

Pair Corralation between Northern Bond and Active M

Assuming the 90 days horizon Northern Bond is expected to generate 4.05 times less return on investment than Active M. But when comparing it to its historical volatility, Northern Bond Index is 3.06 times less risky than Active M. It trades about 0.12 of its potential returns per unit of risk. Active M International is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,062  in Active M International on December 30, 2024 and sell it today you would earn a total of  97.00  from holding Active M International or generate 9.13% return on investment over 90 days.

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

Northern Bond Index  vs.  Active M International

Northern Bond Index

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Bond Index are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Northern Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Active M International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Active M International are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Active M may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Northern Bond and Active M

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

The idea behind Northern Bond Index and Active M International 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.