Correlation Between Northern Stock and Northern Global
Can any of the company-specific risk be diversified away by investing in both Northern Stock and Northern Global 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 Stock and Northern Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Stock Index and Northern Global Sustainability, you can compare the effects of market volatilities on Northern Stock and Northern Global 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 Stock with a short position of Northern Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Stock and Northern Global.
Diversification Opportunities for Northern Stock and Northern Global
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Northern is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Northern Stock Index and Northern Global Sustainability in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Global Sust and Northern Stock 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 Stock Index are associated (or correlated) with Northern Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Global Sust has no effect on the direction of Northern Stock i.e., Northern Stock and Northern Global go up and down completely randomly.
Pair Corralation between Northern Stock and Northern Global
Assuming the 90 days horizon Northern Stock Index is expected to generate 0.95 times more return on investment than Northern Global. However, Northern Stock Index is 1.06 times less risky than Northern Global. It trades about 0.11 of its potential returns per unit of risk. Northern Global Sustainability is currently generating about 0.08 per unit of risk. If you would invest 3,827 in Northern Stock Index on September 23, 2024 and sell it today you would earn a total of 2,116 from holding Northern Stock Index or generate 55.29% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Northern Stock Index vs. Northern Global Sustainability
Performance |
Timeline |
Northern Stock Index |
Northern Global Sust |
Northern Stock and Northern Global Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northern Stock and Northern Global
The main advantage of trading using opposite Northern Stock and Northern Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Stock position performs unexpectedly, Northern Global 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 Global will offset losses from the drop in Northern Global's long position.Northern Stock vs. Northern Small Cap | Northern Stock vs. Northern International Equity | Northern Stock vs. Northern Mid Cap | Northern Stock vs. Northern Bond Index |
Northern Global vs. Northern Bond Index | Northern Global vs. Northern E Bond | Northern Global vs. Northern Arizona Tax Exempt | Northern Global vs. Northern Emerging Markets |
Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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