Correlation Between Northern Intermediate and Northern International

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

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

Diversification Opportunities for Northern Intermediate and Northern International

0.61

Correlation Coefficient

Northern Intermediate  Northern International

Poor diversification

The 3 months correlation between Northern and Northern is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Northern Intermediate Tax Exem and Northern International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern International and Northern Intermediate 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 Intermediate Tax Exempt are associated (or correlated) with Northern International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern International has no effect on the direction of Northern Intermediate i.e., Northern Intermediate and Northern International go up and down completely randomly.

Pair Corralation between Northern Intermediate and Northern International

Assuming the 90 days horizon Northern Intermediate Tax Exempt is expected to generate 0.24 times more return on investment than Northern International. However, Northern Intermediate Tax Exempt is 4.17 times less risky than Northern International. It trades about -0.06 of its potential returns per unit of risk. Northern International Equity is currently generating about -0.16 per unit of risk. If you would invest  985.00  in Northern Intermediate Tax Exempt on October 10, 2024 and sell it today you would lose (8.00) from holding Northern Intermediate Tax Exempt or give up 0.81% of portfolio value over 90 days.

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

Northern Intermediate Tax Exem  vs.  Northern International Equity

Northern Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest weak performance, the Fund's technical and fundamental 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 Intermediate and Northern International

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

The idea behind Northern Intermediate Tax Exempt and Northern International Equity 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.