Correlation Between NORTHERN and Analog Devices

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

By analyzing existing cross correlation between NORTHERN TRUST PORATION and Analog Devices, you can compare the effects of market volatilities on NORTHERN and Analog Devices 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 NORTHERN with a short position of Analog Devices. Check out your portfolio center. Please also check ongoing floating volatility patterns of NORTHERN and Analog Devices.

Diversification Opportunities for NORTHERN and Analog Devices

0.32

Correlation Coefficient

NORTHERN  Analog Devices

Weak diversification

The 3 months correlation between NORTHERN and Analog is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding NORTHERN TRUST PORATION and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and NORTHERN 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 NORTHERN TRUST PORATION are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of NORTHERN i.e., NORTHERN and Analog Devices go up and down completely randomly.

Pair Corralation between NORTHERN and Analog Devices

Assuming the 90 days trading horizon NORTHERN TRUST PORATION is expected to under-perform the Analog Devices. But the bond apears to be less risky and, when comparing its historical volatility, NORTHERN TRUST PORATION is 1.2 times less risky than Analog Devices. The bond trades about -0.25 of its potential returns per unit of risk. The Analog Devices is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  22,218  in Analog Devices on October 2, 2024 and sell it today you would lose (962.00) from holding Analog Devices or give up 4.33% of portfolio value over 90 days.

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

NORTHERN TRUST PORATION  vs.  Analog Devices

NORTHERN TRUST PORATION

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORTHERN TRUST PORATION has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for NORTHERN TRUST PORATION investors.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NORTHERN and Analog Devices

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

The idea behind NORTHERN TRUST PORATION and Analog Devices 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..