Correlation Between Northern Small and Voya Index

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

Diversification Opportunities for Northern Small and Voya Index

0.96

Correlation Coefficient

Northern Small  Voya Index

Almost no diversification

The 3 months correlation between Northern and Voya is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Voya Index Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Voya Index Plus 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 Voya Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Voya Index Plus has no effect on the direction of Northern Small i.e., Northern Small and Voya Index go up and down completely randomly.

Pair Corralation between Northern Small and Voya Index

Assuming the 90 days horizon Northern Small Cap is expected to generate 1.07 times more return on investment than Voya Index. However, Northern Small is 1.07 times more volatile than Voya Index Plus. It trades about -0.09 of its potential returns per unit of risk. Voya Index Plus is currently generating about -0.11 per unit of risk. If you would invest  1,396  in Northern Small Cap on December 21, 2024 and sell it today you would lose (93.00) from holding Northern Small Cap or give up 6.66% of portfolio value over 90 days.

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

Northern Small Cap  vs.  Voya Index Plus

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 fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Voya Index Plus

Risk-Adjusted Performance

Very Weak

Over the last 90 days Voya Index Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Northern Small and Voya Index

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

The idea behind Northern Small Cap and Voya Index Plus 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.