Correlation Between Northern Trust and Yamaha Corp

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

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

Diversification Opportunities for Northern Trust and Yamaha Corp

-0.83

Correlation Coefficient

Northern Trust  Yamaha Corp

Pay attention - limited upside

The 3 months correlation between Northern and Yamaha is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and Yamaha Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yamaha Corp 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 Yamaha Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yamaha Corp has no effect on the direction of Northern Trust i.e., Northern Trust and Yamaha Corp go up and down completely randomly.

Pair Corralation between Northern Trust and Yamaha Corp

Assuming the 90 days horizon Northern Trust is expected to generate 0.73 times more return on investment than Yamaha Corp. However, Northern Trust is 1.37 times less risky than Yamaha Corp. It trades about 0.22 of its potential returns per unit of risk. Yamaha Corp is currently generating about -0.07 per unit of risk. If you would invest  7,942  in Northern Trust on October 4, 2024 and sell it today you would earn a total of  2,008  from holding Northern Trust or generate 25.28% return on investment over 90 days.

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

Northern Trust  vs.  Yamaha Corp

Northern Trust

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 17 (%) 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.

Yamaha Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yamaha Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Northern Trust and Yamaha Corp

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

The idea behind Northern Trust and Yamaha Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.