Correlation Between Northern Trust and Commerzbank

Can any of the company-specific risk be diversified away by investing in both Northern Trust and Commerzbank 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 Trust and Commerzbank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Trust and Commerzbank AG, you can compare the effects of market volatilities on Northern Trust and Commerzbank 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 Trust with a short position of Commerzbank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Trust and Commerzbank.

Diversification Opportunities for Northern Trust and Commerzbank

-0.67

Correlation Coefficient

Northern Trust  Commerzbank

Excellent diversification

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

Pair Corralation between Northern Trust and Commerzbank

Assuming the 90 days horizon Northern Trust is expected to under-perform the Commerzbank. But the stock apears to be less risky and, when comparing its historical volatility, Northern Trust is 1.15 times less risky than Commerzbank. The stock trades about -0.21 of its potential returns per unit of risk. The Commerzbank AG is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,535  in Commerzbank AG on September 23, 2024 and sell it today you would lose (10.00) from holding Commerzbank AG or give up 0.65% of portfolio value over 90 days.

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

Northern Trust  vs.  Commerzbank AG

Northern Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Commerzbank AG

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Commerzbank AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking signals, Commerzbank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Northern Trust and Commerzbank

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

The idea behind Northern Trust and Commerzbank AG 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.