Correlation Between FlexShares Quality and Northern Trust

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

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

Diversification Opportunities for FlexShares Quality and Northern Trust

0.68

Correlation Coefficient

FlexShares Quality  Northern Trust

Poor diversification

The 3 months correlation between FlexShares and Northern is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Quality Dividend and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and FlexShares Quality 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 FlexShares Quality Dividend 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 FlexShares Quality i.e., FlexShares Quality and Northern Trust go up and down completely randomly.

Pair Corralation between FlexShares Quality and Northern Trust

If you would invest  6,983  in FlexShares Quality Dividend on September 18, 2024 and sell it today you would earn a total of  327.00  from holding FlexShares Quality Dividend or generate 4.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.59%
Values	Daily Returns

FlexShares Quality Dividend  vs.  Northern Trust

FlexShares Quality

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Dividend are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

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 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.

Pair Trading with FlexShares Quality and Northern Trust

The main advantage of trading using opposite FlexShares Quality and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Quality 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 FlexShares Quality Dividend 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.