Correlation Between Northern Bond and Northern Short
Can any of the company-specific risk be diversified away by investing in both Northern Bond and Northern Short 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 Northern Short 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 Northern Short Intermediate Government, you can compare the effects of market volatilities on Northern Bond and Northern Short 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 Northern Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Bond and Northern Short.
Diversification Opportunities for Northern Bond and Northern Short
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northern and Northern is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Northern Bond Index and Northern Short Intermediate Go in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Short Inter 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 Northern Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Short Inter has no effect on the direction of Northern Bond i.e., Northern Bond and Northern Short go up and down completely randomly.
Pair Corralation between Northern Bond and Northern Short
Assuming the 90 days horizon Northern Bond is expected to generate 1.06 times less return on investment than Northern Short. In addition to that, Northern Bond is 1.96 times more volatile than Northern Short Intermediate Government. It trades about 0.03 of its total potential returns per unit of risk. Northern Short Intermediate Government is currently generating about 0.06 per unit of volatility. If you would invest 872.00 in Northern Short Intermediate Government on September 23, 2024 and sell it today you would earn a total of 56.00 from holding Northern Short Intermediate Government or generate 6.42% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Northern Bond Index vs. Northern Short Intermediate Go
Performance |
Timeline |
Northern Bond Index |
Northern Short Inter |
Northern Bond and Northern Short Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northern Bond and Northern Short
The main advantage of trading using opposite Northern Bond and Northern Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Bond position performs unexpectedly, Northern Short 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 Short will offset losses from the drop in Northern Short's long position.Northern Bond vs. Northern E Bond | Northern Bond vs. Northern Arizona Tax Exempt | Northern Bond vs. Northern Emerging Markets | Northern Bond vs. Northern Fixed Income |
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Check out your portfolio center.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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