Correlation Between Northern Small and Oberweis China

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

Diversification Opportunities for Northern Small and Oberweis China

-0.67

Correlation Coefficient

Northern Small  Oberweis China

Excellent diversification

The 3 months correlation between NORTHERN and Oberweis is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Oberweis China Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oberweis China Oppor 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 Oberweis China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oberweis China Oppor has no effect on the direction of Northern Small i.e., Northern Small and Oberweis China go up and down completely randomly.

Pair Corralation between Northern Small and Oberweis China

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Oberweis China. But the mutual fund apears to be less risky and, when comparing its historical volatility, Northern Small Cap is 1.71 times less risky than Oberweis China. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Oberweis China Opportunities is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  697.00  in Oberweis China Opportunities on December 30, 2024 and sell it today you would earn a total of  106.00  from holding Oberweis China Opportunities or generate 15.21% return on investment over 90 days.

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

Northern Small Cap  vs.  Oberweis China Opportunities

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.

Oberweis China Oppor

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oberweis China Opportunities are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Oberweis China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Small and Oberweis China

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

The idea behind Northern Small Cap and Oberweis China Opportunities 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.