Correlation Between Northern Small and Conquer Risk

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

Diversification Opportunities for Northern Small and Conquer Risk

0.26

Correlation Coefficient

Northern Small  Conquer Risk

Modest diversification

The 3 months correlation between Northern and Conquer is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Conquer Risk Defensive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Conquer Risk Defensive 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 Conquer Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Conquer Risk Defensive has no effect on the direction of Northern Small i.e., Northern Small and Conquer Risk go up and down completely randomly.

Pair Corralation between Northern Small and Conquer Risk

Assuming the 90 days horizon Northern Small is expected to generate 1.8 times less return on investment than Conquer Risk. In addition to that, Northern Small is 1.16 times more volatile than Conquer Risk Defensive. It trades about 0.03 of its total potential returns per unit of risk. Conquer Risk Defensive is currently generating about 0.06 per unit of volatility. If you would invest  999.00  in Conquer Risk Defensive on October 7, 2024 and sell it today you would earn a total of  327.00  from holding Conquer Risk Defensive or generate 32.73% 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.  Conquer Risk Defensive

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 fairly strong fundamental indicators, Northern Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Conquer Risk Defensive

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Conquer Risk Defensive are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Conquer Risk may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Northern Small and Conquer Risk

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

The idea behind Northern Small Cap and Conquer Risk Defensive 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.