Correlation Between Northern Small and Deutsche Capital

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

Diversification Opportunities for Northern Small and Deutsche Capital

0.88

Correlation Coefficient

Northern Small  Deutsche Capital

Very poor diversification

The 3 months correlation between Northern and Deutsche is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Deutsche Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Capital Growth 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 Deutsche Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Capital Growth has no effect on the direction of Northern Small i.e., Northern Small and Deutsche Capital go up and down completely randomly.

Pair Corralation between Northern Small and Deutsche Capital

Assuming the 90 days horizon Northern Small Cap is expected to generate 1.02 times more return on investment than Deutsche Capital. However, Northern Small is 1.02 times more volatile than Deutsche Capital Growth. It trades about 0.11 of its potential returns per unit of risk. Deutsche Capital Growth is currently generating about 0.07 per unit of risk. If you would invest  1,410  in Northern Small Cap on October 25, 2024 and sell it today you would earn a total of  29.00  from holding Northern Small Cap or generate 2.06% return on investment over 90 days.

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

Northern Small Cap  vs.  Deutsche Capital Growth

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.

Deutsche Capital Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Capital Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Deutsche Capital 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 Deutsche Capital

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

The idea behind Northern Small Cap and Deutsche Capital Growth 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.