Correlation Between Northern Emerging and Northern California

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

By analyzing existing cross correlation between Northern Emerging Markets and Northern California Intermediate, you can compare the effects of market volatilities on Northern Emerging and Northern California 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 Emerging with a short position of Northern California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Emerging and Northern California.

Diversification Opportunities for Northern Emerging and Northern California

0.28

Correlation Coefficient

Northern Emerging  Northern California

Modest diversification

The 3 months correlation between Northern and Northern is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Northern Emerging Markets and Northern California Intermedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern California and Northern Emerging 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 Emerging Markets are associated (or correlated) with Northern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern California has no effect on the direction of Northern Emerging i.e., Northern Emerging and Northern California go up and down completely randomly.

Pair Corralation between Northern Emerging and Northern California

Assuming the 90 days horizon Northern Emerging Markets is expected to under-perform the Northern California. In addition to that, Northern Emerging is 3.85 times more volatile than Northern California Intermediate. It trades about -0.23 of its total potential returns per unit of risk. Northern California Intermediate is currently generating about -0.28 per unit of volatility. If you would invest  994.00  in Northern California Intermediate on September 24, 2024 and sell it today you would lose (13.00) from holding Northern California Intermediate or give up 1.31% of portfolio value over 90 days.

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

Northern Emerging Markets  vs.  Northern California Intermedia

Northern Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Northern California

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern California Intermediate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Northern California 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 Emerging and Northern California

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

The idea behind Northern Emerging Markets and Northern California Intermediate 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.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.