Correlation Between Northern Emerging and Northern Mid

Can any of the company-specific risk be diversified away by investing in both Northern Emerging and Northern Mid 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 Mid 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 Mid Cap, you can compare the effects of market volatilities on Northern Emerging and Northern Mid 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 Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Emerging and Northern Mid.

Diversification Opportunities for Northern Emerging and Northern Mid

-0.34

Correlation Coefficient

Northern Emerging  Northern Mid

Very good diversification

The 3 months correlation between Northern and Northern is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Northern Emerging Markets and Northern Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Mid Cap 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Mid Cap has no effect on the direction of Northern Emerging i.e., Northern Emerging and Northern Mid go up and down completely randomly.

Pair Corralation between Northern Emerging and Northern Mid

Assuming the 90 days horizon Northern Emerging Markets is expected to generate 0.86 times more return on investment than Northern Mid. However, Northern Emerging Markets is 1.16 times less risky than Northern Mid. It trades about 0.11 of its potential returns per unit of risk. Northern Mid Cap is currently generating about -0.06 per unit of risk. If you would invest  1,115  in Northern Emerging Markets on December 28, 2024 and sell it today you would earn a total of  69.00  from holding Northern Emerging Markets or generate 6.19% return on investment over 90 days.

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

Northern Emerging Markets  vs.  Northern Mid Cap

Northern Emerging Markets

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Emerging Markets are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Northern Emerging may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Northern Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Northern Mid 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 Mid

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

The idea behind Northern Emerging Markets and Northern Mid Cap 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.