Correlation Between OFS Credit and Northern Trust

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

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

Diversification Opportunities for OFS Credit and Northern Trust

-0.73

Correlation Coefficient

OFS Credit  Northern Trust

Pay attention - limited upside

The 3 months correlation between OFS and Northern is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding OFS Credit and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and OFS Credit 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 OFS Credit are associated (or correlated) with Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of OFS Credit i.e., OFS Credit and Northern Trust go up and down completely randomly.

Pair Corralation between OFS Credit and Northern Trust

Assuming the 90 days horizon OFS Credit is expected to generate 0.33 times more return on investment than Northern Trust. However, OFS Credit is 3.03 times less risky than Northern Trust. It trades about 0.12 of its potential returns per unit of risk. Northern Trust is currently generating about 0.0 per unit of risk. If you would invest  2,259  in OFS Credit on September 23, 2024 and sell it today you would earn a total of  99.00  from holding OFS Credit or generate 4.38% return on investment over 90 days.

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

OFS Credit  vs.  Northern Trust

OFS Credit

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in OFS Credit are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, OFS Credit is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Northern Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Preferred Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with OFS Credit and Northern Trust

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

The idea behind OFS Credit and Northern Trust 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.