Correlation Between Northern Small and Northern High
Can any of the company-specific risk be diversified away by investing in both Northern Small and Northern High 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 High 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 High Yield, you can compare the effects of market volatilities on Northern Small and Northern High 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 High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Northern High.
Diversification Opportunities for Northern Small and Northern High
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Northern and Northern is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Northern High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern High Yield 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 High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern High Yield has no effect on the direction of Northern Small i.e., Northern Small and Northern High go up and down completely randomly.
Pair Corralation between Northern Small and Northern High
Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Northern High. In addition to that, Northern Small is 7.47 times more volatile than Northern High Yield. It trades about -0.23 of its total potential returns per unit of risk. Northern High Yield is currently generating about 0.06 per unit of volatility. If you would invest 605.00 in Northern High Yield on December 4, 2024 and sell it today you would earn a total of 4.00 from holding Northern High Yield or generate 0.66% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Northern Small Cap vs. Northern High Yield
Performance |
Timeline |
Northern Small Cap |
Northern High Yield |
Northern Small and Northern High Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northern Small and Northern High
The main advantage of trading using opposite Northern Small and Northern High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Northern High 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 High will offset losses from the drop in Northern High's long position.Northern Small vs. American Century Diversified | Northern Small vs. Principal Lifetime Hybrid | Northern Small vs. Harbor Diversified International | Northern Small vs. Aqr Diversified Arbitrage |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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