Correlation Between NORTHERN and ScanSource

Can any of the company-specific risk be diversified away by investing in both NORTHERN and ScanSource 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 ScanSource 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 ScanSource, you can compare the effects of market volatilities on NORTHERN and ScanSource 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 ScanSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of NORTHERN and ScanSource.

Diversification Opportunities for NORTHERN and ScanSource

0.36

Correlation Coefficient

NORTHERN  ScanSource

Weak diversification

The 3 months correlation between NORTHERN and ScanSource is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding NORTHERN TRUST PORATION and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource 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 ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of NORTHERN i.e., NORTHERN and ScanSource go up and down completely randomly.

Pair Corralation between NORTHERN and ScanSource

Assuming the 90 days trading horizon NORTHERN TRUST PORATION is expected to under-perform the ScanSource. But the bond apears to be less risky and, when comparing its historical volatility, NORTHERN TRUST PORATION is 5.35 times less risky than ScanSource. The bond trades about -0.04 of its potential returns per unit of risk. The ScanSource is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,487  in ScanSource on October 25, 2024 and sell it today you would earn a total of  648.00  from holding ScanSource or generate 14.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

NORTHERN TRUST PORATION  vs.  ScanSource

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 somewhat strong basic indicators, NORTHERN is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

ScanSource

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, ScanSource exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NORTHERN and ScanSource

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

The idea behind NORTHERN TRUST PORATION and ScanSource 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.