Correlation Between Northern Government and Invesco Convertible

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

By analyzing existing cross correlation between Northern Government Fund and Invesco Vertible Securities, you can compare the effects of market volatilities on Northern Government and Invesco Convertible 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 Government with a short position of Invesco Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Government and Invesco Convertible.

Diversification Opportunities for Northern Government and Invesco Convertible

0.39

Correlation Coefficient

Northern Government  Invesco Convertible

Weak diversification

The 3 months correlation between Northern and Invesco is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Northern Government Fund and Invesco Vertible Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Vertible Sec and Northern Government 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 Government Fund are associated (or correlated) with Invesco Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Vertible Sec has no effect on the direction of Northern Government i.e., Northern Government and Invesco Convertible go up and down completely randomly.

Pair Corralation between Northern Government and Invesco Convertible

Assuming the 90 days horizon Northern Government Fund is expected to under-perform the Invesco Convertible. But the mutual fund apears to be less risky and, when comparing its historical volatility, Northern Government Fund is 2.24 times less risky than Invesco Convertible. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Invesco Vertible Securities is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,425  in Invesco Vertible Securities on October 26, 2024 and sell it today you would earn a total of  36.00  from holding Invesco Vertible Securities or generate 1.48% return on investment over 90 days.

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

Northern Government Fund  vs.  Invesco Vertible Securities

Northern Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco Vertible Sec

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Vertible Securities are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Invesco Convertible 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 Government and Invesco Convertible

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

The idea behind Northern Government Fund and Invesco Vertible Securities 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.