Correlation Between Northern Core and Northern Tax-advantaged

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

By analyzing existing cross correlation between Northern E Bond and Northern Tax Advantaged Ultra Short, you can compare the effects of market volatilities on Northern Core and Northern Tax-advantaged 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 Core with a short position of Northern Tax-advantaged. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Core and Northern Tax-advantaged.

Diversification Opportunities for Northern Core and Northern Tax-advantaged

-0.01

Correlation Coefficient

Northern Core  Northern Tax-advantaged

Good diversification

The 3 months correlation between Northern and Northern is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Northern E Bond and Northern Tax Advantaged Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Tax Advantaged and Northern Core 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 E Bond are associated (or correlated) with Northern Tax-advantaged. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Tax Advantaged has no effect on the direction of Northern Core i.e., Northern Core and Northern Tax-advantaged go up and down completely randomly.

Pair Corralation between Northern Core and Northern Tax-advantaged

Assuming the 90 days horizon Northern E Bond is expected to under-perform the Northern Tax-advantaged. In addition to that, Northern Core is 5.85 times more volatile than Northern Tax Advantaged Ultra Short. It trades about -0.45 of its total potential returns per unit of risk. Northern Tax Advantaged Ultra Short is currently generating about 0.13 per unit of volatility. If you would invest  1,017  in Northern Tax Advantaged Ultra Short on October 12, 2024 and sell it today you would earn a total of  1.00  from holding Northern Tax Advantaged Ultra Short or generate 0.1% return on investment over 90 days.

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

Northern E Bond  vs.  Northern Tax Advantaged Ultra

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 Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northern Tax Advantaged

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Tax Advantaged Ultra Short are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Northern Tax-advantaged 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 Core and Northern Tax-advantaged

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

The idea behind Northern E Bond and Northern Tax Advantaged Ultra Short 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.