Correlation Between Saat Moderate and Northern Tax

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

By analyzing existing cross correlation between Saat Moderate Strategy and Northern Tax Exempt Fund, you can compare the effects of market volatilities on Saat Moderate and Northern Tax 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 Saat Moderate with a short position of Northern Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Saat Moderate and Northern Tax.

Diversification Opportunities for Saat Moderate and Northern Tax

0.84

Correlation Coefficient

Saat Moderate  Northern Tax

Very poor diversification

The 3 months correlation between Saat and Northern is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Saat Moderate Strategy and Northern Tax Exempt Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Tax Exempt and Saat Moderate 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 Saat Moderate Strategy are associated (or correlated) with Northern Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Tax Exempt has no effect on the direction of Saat Moderate i.e., Saat Moderate and Northern Tax go up and down completely randomly.

Pair Corralation between Saat Moderate and Northern Tax

Assuming the 90 days horizon Saat Moderate Strategy is expected to generate 1.18 times more return on investment than Northern Tax. However, Saat Moderate is 1.18 times more volatile than Northern Tax Exempt Fund. It trades about -0.24 of its potential returns per unit of risk. Northern Tax Exempt Fund is currently generating about -0.31 per unit of risk. If you would invest  1,186  in Saat Moderate Strategy on September 24, 2024 and sell it today you would lose (17.00) from holding Saat Moderate Strategy or give up 1.43% of portfolio value over 90 days.

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

Saat Moderate Strategy  vs.  Northern Tax Exempt Fund

Saat Moderate Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Northern Tax Exempt

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Saat Moderate and Northern Tax

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

The idea behind Saat Moderate Strategy and Northern Tax Exempt Fund 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.