Correlation Between Northern E and Northern Ultra-short

Can any of the company-specific risk be diversified away by investing in both Northern E and Northern Ultra-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 E and Northern Ultra-short 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 Ultra Short Fixed, you can compare the effects of market volatilities on Northern E and Northern Ultra-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 E with a short position of Northern Ultra-short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern E and Northern Ultra-short.

Diversification Opportunities for Northern E and Northern Ultra-short

0.95

Correlation Coefficient

Northern E  Northern Ultra-short

Almost no diversification

The 3 months correlation between Northern and Northern is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Northern E Bond 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 Northern E 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 Ultra-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 Ultra Short has no effect on the direction of Northern E i.e., Northern E and Northern Ultra-short go up and down completely randomly.

Pair Corralation between Northern E and Northern Ultra-short

Assuming the 90 days horizon Northern E Bond is expected to generate 3.45 times more return on investment than Northern Ultra-short. However, Northern E is 3.45 times more volatile than Northern Ultra Short Fixed. It trades about 0.09 of its potential returns per unit of risk. Northern Ultra Short Fixed is currently generating about 0.2 per unit of risk. If you would invest  872.00  in Northern E Bond on December 28, 2024 and sell it today you would earn a total of  15.00  from holding Northern E Bond or generate 1.72% return on investment over 90 days.

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

Northern E Bond  vs.  Northern Ultra Short Fixed

Northern E Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern E Bond are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. 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.

Northern Ultra Short

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Ultra Short Fixed are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Northern Ultra-short 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 E and Northern Ultra-short

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

The idea behind Northern E Bond 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 CEOs Directory module to screen CEOs from public companies around the world.