Correlation Between Northern International and Northern Emerging

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

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

Diversification Opportunities for Northern International and Northern Emerging

0.91

Correlation Coefficient

Northern International  Northern Emerging

Almost no diversification

The 3 months correlation between Northern and Northern is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Northern International Equity and Northern Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Emerging Markets and Northern International 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 International Equity are associated (or correlated) with Northern Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Emerging Markets has no effect on the direction of Northern International i.e., Northern International and Northern Emerging go up and down completely randomly.

Pair Corralation between Northern International and Northern Emerging

Assuming the 90 days horizon Northern International Equity is expected to generate 1.01 times more return on investment than Northern Emerging. However, Northern International is 1.01 times more volatile than Northern Emerging Markets. It trades about -0.09 of its potential returns per unit of risk. Northern Emerging Markets is currently generating about -0.15 per unit of risk. If you would invest  1,461  in Northern International Equity on October 20, 2024 and sell it today you would lose (61.00) from holding Northern International Equity or give up 4.18% of portfolio value over 90 days.

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

Northern International Equity  vs.  Northern Emerging Markets

Northern International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern International Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Northern International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Northern International and Northern Emerging

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

The idea behind Northern International Equity and Northern Emerging Markets 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.