Correlation Between Northern Small and Northern

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

Diversification Opportunities for Northern Small and Northern

0.35

Correlation Coefficient

Northern Small  Northern

Weak diversification

The 3 months correlation between Northern and Northern is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Northern Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Government 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Government has no effect on the direction of Northern Small i.e., Northern Small and Northern go up and down completely randomly.

Pair Corralation between Northern Small and Northern

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Northern. In addition to that, Northern Small is 7.86 times more volatile than Northern Government Fund. It trades about -0.3 of its total potential returns per unit of risk. Northern Government Fund is currently generating about -0.36 per unit of volatility. If you would invest  874.00  in Northern Government Fund on October 13, 2024 and sell it today you would lose (13.00) from holding Northern Government Fund or give up 1.49% of portfolio value 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 Government Fund

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.

Northern Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Government Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Northern 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

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

The idea behind Northern Small Cap and Northern Government Fund 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.