Correlation Between Northern Small and Northern Global

Can any of the company-specific risk be diversified away by investing in both Northern Small 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 Small 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 Small Cap and Northern Global Tactical, you can compare the effects of market volatilities on Northern Small 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 Small with a short position of Northern Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Northern Global.

Diversification Opportunities for Northern Small and Northern Global

0.2

Correlation Coefficient

Northern Small  Northern Global

Modest diversification

The 3 months correlation between Northern and Northern is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Northern Global Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Global Tactical 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 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 Tactical has no effect on the direction of Northern Small i.e., Northern Small and Northern Global go up and down completely randomly.

Pair Corralation between Northern Small and Northern Global

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Northern Global. In addition to that, Northern Small is 1.97 times more volatile than Northern Global Tactical. It trades about -0.11 of its total potential returns per unit of risk. Northern Global Tactical is currently generating about 0.04 per unit of volatility. If you would invest  1,292  in Northern Global Tactical on December 22, 2024 and sell it today you would earn a total of  14.00  from holding Northern Global Tactical or generate 1.08% return on investment over 90 days.

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

Northern Small Cap  vs.  Northern Global Tactical

Northern Small Cap

Risk-Adjusted Performance

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

Northern Global Tactical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Global Tactical are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Northern Global 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 Small and Northern Global

The main advantage of trading using opposite Northern Small and Northern Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small 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.

The idea behind Northern Small Cap and Northern Global Tactical 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.