Correlation Between Northern Stock and Sp Midcap

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

Diversification Opportunities for Northern Stock and Sp Midcap

0.91

Correlation Coefficient

Northern Stock  Sp Midcap

Almost no diversification

The 3 months correlation between Northern and SPMIX is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Northern Stock Index and Sp Midcap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap Index 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 Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap Index has no effect on the direction of Northern Stock i.e., Northern Stock and Sp Midcap go up and down completely randomly.

Pair Corralation between Northern Stock and Sp Midcap

Assuming the 90 days horizon Northern Stock Index is expected to under-perform the Sp Midcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Northern Stock Index is 1.05 times less risky than Sp Midcap. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Sp Midcap Index is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,543  in Sp Midcap Index on December 29, 2024 and sell it today you would lose (116.00) from holding Sp Midcap Index or give up 4.56% of portfolio value over 90 days.

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

Northern Stock Index  vs.  Sp Midcap Index

Northern Stock Index

Risk-Adjusted Performance

Very Weak

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

Sp Midcap Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sp Midcap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Sp Midcap 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 Stock and Sp Midcap

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

The idea behind Northern Stock Index and Sp Midcap Index 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.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.