Correlation Between Northern Income and Northern Arizona

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

By analyzing existing cross correlation between Northern Income Equity and Northern Arizona Tax Exempt, you can compare the effects of market volatilities on Northern Income and Northern Arizona 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 Income with a short position of Northern Arizona. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Income and Northern Arizona.

Diversification Opportunities for Northern Income and Northern Arizona

0.11

Correlation Coefficient

Northern Income  Northern Arizona

Average diversification

The 3 months correlation between Northern and Northern is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Northern Income Equity and Northern Arizona Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Arizona Tax and Northern Income 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 Income Equity are associated (or correlated) with Northern Arizona. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Arizona Tax has no effect on the direction of Northern Income i.e., Northern Income and Northern Arizona go up and down completely randomly.

Pair Corralation between Northern Income and Northern Arizona

Assuming the 90 days horizon Northern Income Equity is expected to generate 3.43 times more return on investment than Northern Arizona. However, Northern Income is 3.43 times more volatile than Northern Arizona Tax Exempt. It trades about 0.11 of its potential returns per unit of risk. Northern Arizona Tax Exempt is currently generating about 0.05 per unit of risk. If you would invest  1,117  in Northern Income Equity on September 23, 2024 and sell it today you would earn a total of  563.00  from holding Northern Income Equity or generate 50.4% return on investment over 90 days.

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

Northern Income Equity  vs.  Northern Arizona Tax Exempt

Northern Income Equity

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Income Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Northern Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northern Arizona Tax

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Northern Income Equity and Northern Arizona Tax Exempt 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.