Correlation Between Pear Tree and Northern Large

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

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

Diversification Opportunities for Pear Tree and Northern Large

-0.62

Correlation Coefficient

Pear Tree  Northern Large

Excellent diversification

The 3 months correlation between Pear and Northern is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Pear Tree Polaris and Northern Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Large Cap and Pear Tree 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 Pear Tree Polaris are associated (or correlated) with Northern Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Large Cap has no effect on the direction of Pear Tree i.e., Pear Tree and Northern Large go up and down completely randomly.

Pair Corralation between Pear Tree and Northern Large

Assuming the 90 days horizon Pear Tree is expected to generate 21.53 times less return on investment than Northern Large. But when comparing it to its historical volatility, Pear Tree Polaris is 1.02 times less risky than Northern Large. It trades about 0.0 of its potential returns per unit of risk. Northern Large Cap is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,049  in Northern Large Cap on September 15, 2024 and sell it today you would earn a total of  213.00  from holding Northern Large Cap or generate 10.4% return on investment over 90 days.

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

Pear Tree Polaris  vs.  Northern Large Cap

Pear Tree Polaris

Risk-Adjusted Performance

0 of 100

Very Weak

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

Northern Large Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Large Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Northern Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pear Tree and Northern Large

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

The idea behind Pear Tree Polaris and Northern Large Cap 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.