Correlation Between Northern Mid and Northern Quality

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

Diversification Opportunities for Northern Mid and Northern Quality

0.83

Correlation Coefficient

Northern Mid  Northern Quality

Very poor diversification

The 3 months correlation between Northern and Northern is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Northern Mid Cap and Northern Quality Esg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Quality Esg 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 Northern Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Quality Esg has no effect on the direction of Northern Mid i.e., Northern Mid and Northern Quality go up and down completely randomly.

Pair Corralation between Northern Mid and Northern Quality

Assuming the 90 days horizon Northern Mid is expected to generate 1.93 times less return on investment than Northern Quality. In addition to that, Northern Mid is 1.38 times more volatile than Northern Quality Esg. It trades about 0.04 of its total potential returns per unit of risk. Northern Quality Esg is currently generating about 0.1 per unit of volatility. If you would invest  1,406  in Northern Quality Esg on September 23, 2024 and sell it today you would earn a total of  708.00  from holding Northern Quality Esg or generate 50.36% return on investment over 90 days.

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

Northern Mid Cap  vs.  Northern Quality Esg

Northern Mid Cap

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Northern Quality Esg

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Quality Esg are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Northern Quality 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 Northern Quality

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

The idea behind Northern Mid Cap and Northern Quality Esg 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.