Correlation Between Northern Mid and Active M

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

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

Diversification Opportunities for Northern Mid and Active M

0.86

Correlation Coefficient

Northern Mid  Active M

Very poor diversification

The 3 months correlation between Northern and Active is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Northern Mid Cap and Active M International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Active M International and Northern Mid 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 Mid Cap are associated (or correlated) with Active M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Active M International has no effect on the direction of Northern Mid i.e., Northern Mid and Active M go up and down completely randomly.

Pair Corralation between Northern Mid and Active M

Assuming the 90 days horizon Northern Mid Cap is expected to under-perform the Active M. But the mutual fund apears to be less risky and, when comparing its historical volatility, Northern Mid Cap is 1.23 times less risky than Active M. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Active M International is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,235  in Active M International on November 28, 2024 and sell it today you would lose (73.00) from holding Active M International or give up 5.91% of portfolio value over 90 days.

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

Northern Mid Cap  vs.  Active M International

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 weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Active M International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Active M International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Active M 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 Mid and Active M

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

The idea behind Northern Mid Cap and Active M International 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.