Correlation Between Northern Trust and Fifth Third

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

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

Diversification Opportunities for Northern Trust and Fifth Third

0.51

Correlation Coefficient

Northern Trust  Fifth Third

Very weak diversification

The 3 months correlation between Northern and Fifth is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and Fifth Third Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fifth Third Bancorp 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 Fifth Third. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fifth Third Bancorp has no effect on the direction of Northern Trust i.e., Northern Trust and Fifth Third go up and down completely randomly.

Pair Corralation between Northern Trust and Fifth Third

Assuming the 90 days horizon Northern Trust is expected to generate 2.45 times less return on investment than Fifth Third. But when comparing it to its historical volatility, Northern Trust is 1.19 times less risky than Fifth Third. It trades about 0.03 of its potential returns per unit of risk. Fifth Third Bancorp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,070  in Fifth Third Bancorp on December 30, 2024 and sell it today you would earn a total of  95.00  from holding Fifth Third Bancorp or generate 4.59% return on investment over 90 days.

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

Northern Trust  vs.  Fifth Third Bancorp

Northern Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Northern Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fifth Third Bancorp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Fifth Third is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Northern Trust and Fifth Third

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

The idea behind Northern Trust and Fifth Third Bancorp 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.