Correlation Between Pace Large and Northern Short

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

By analyzing existing cross correlation between Pace Large Value and Northern Short Intermediate Government, you can compare the effects of market volatilities on Pace Large and Northern Short 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 Pace Large with a short position of Northern Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace Large and Northern Short.

Diversification Opportunities for Pace Large and Northern Short

-0.05

Correlation Coefficient

Pace Large  Northern Short

Good diversification

The 3 months correlation between Pace and Northern is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Value and Northern Short Intermediate Go in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Short Inter and Pace Large 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 Pace Large Value are associated (or correlated) with Northern Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Short Inter has no effect on the direction of Pace Large i.e., Pace Large and Northern Short go up and down completely randomly.

Pair Corralation between Pace Large and Northern Short

Assuming the 90 days horizon Pace Large Value is expected to under-perform the Northern Short. In addition to that, Pace Large is 5.85 times more volatile than Northern Short Intermediate Government. It trades about -0.01 of its total potential returns per unit of risk. Northern Short Intermediate Government is currently generating about 0.11 per unit of volatility. If you would invest  899.00  in Northern Short Intermediate Government on September 24, 2024 and sell it today you would earn a total of  29.00  from holding Northern Short Intermediate Government or generate 3.23% return on investment over 90 days.

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

Pace Large Value  vs.  Northern Short Intermediate Go

Pace Large Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace Large Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Northern Short Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Short Intermediate Government has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Northern Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pace Large and Northern Short

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

The idea behind Pace Large Value and Northern Short Intermediate Government 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.