Correlation Between Northern Small and Semiconductor Ultrasector

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

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

Diversification Opportunities for Northern Small and Semiconductor Ultrasector

0.22

Correlation Coefficient

Northern Small  Semiconductor Ultrasector

Modest diversification

The 3 months correlation between Northern and Semiconductor is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Semiconductor Ultrasector Prof in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semiconductor Ultrasector and Northern Small 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 Small Cap are associated (or correlated) with Semiconductor Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semiconductor Ultrasector has no effect on the direction of Northern Small i.e., Northern Small and Semiconductor Ultrasector go up and down completely randomly.

Pair Corralation between Northern Small and Semiconductor Ultrasector

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Semiconductor Ultrasector. In addition to that, Northern Small is 3.05 times more volatile than Semiconductor Ultrasector Profund. It trades about -0.26 of its total potential returns per unit of risk. Semiconductor Ultrasector Profund is currently generating about -0.11 per unit of volatility. If you would invest  3,396  in Semiconductor Ultrasector Profund on September 22, 2024 and sell it today you would lose (224.00) from holding Semiconductor Ultrasector Profund or give up 6.6% of portfolio value over 90 days.

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

Northern Small Cap  vs.  Semiconductor Ultrasector Prof

Northern Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Small 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Semiconductor Ultrasector

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Semiconductor Ultrasector Profund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Semiconductor Ultrasector may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Northern Small and Semiconductor Ultrasector

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

The idea behind Northern Small Cap and Semiconductor Ultrasector Profund 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.