Correlation Between Northern Small and Active M

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

Diversification Opportunities for Northern Small and Active M

-0.57

Correlation Coefficient

Northern Small  Active M

Excellent diversification

The 3 months correlation between NORTHERN and Active is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Active M International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Active M International 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 Active M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Active M International has no effect on the direction of Northern Small i.e., Northern Small and Active M go up and down completely randomly.

Pair Corralation between Northern Small and Active M

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Active M. In addition to that, Northern Small is 1.27 times more volatile than Active M International. It trades about -0.12 of its total potential returns per unit of risk. Active M International is currently generating about 0.15 per unit of volatility. If you would invest  1,062  in Active M International on December 30, 2024 and sell it today you would earn a total of  97.00  from holding Active M International or generate 9.13% return on investment over 90 days.

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

Northern Small Cap  vs.  Active M International

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.

Active M International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Active M International are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Active M may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Northern Small and Active M

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

The idea behind Northern Small Cap and Active M International 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.