Correlation Between Us Small and Northern Small
Can any of the company-specific risk be diversified away by investing in both Us Small and Northern Small 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 Us Small and Northern Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Us Small Cap and Northern Small Cap, you can compare the effects of market volatilities on Us Small and Northern Small 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 Us Small with a short position of Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Small and Northern Small.
Diversification Opportunities for Us Small and Northern Small
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between DFSVX and Northern is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Us Small Cap and Northern Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Small Cap and Us Small 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 Us Small Cap are associated (or correlated) with Northern Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Small Cap has no effect on the direction of Us Small i.e., Us Small and Northern Small go up and down completely randomly.
Pair Corralation between Us Small and Northern Small
Assuming the 90 days horizon Us Small Cap is expected to generate 0.97 times more return on investment than Northern Small. However, Us Small Cap is 1.03 times less risky than Northern Small. It trades about 0.23 of its potential returns per unit of risk. Northern Small Cap is currently generating about 0.2 per unit of risk. If you would invest 4,821 in Us Small Cap on August 25, 2024 and sell it today you would earn a total of 437.00 from holding Us Small Cap or generate 9.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Us Small Cap vs. Northern Small Cap
Performance |
| Timeline |
| Us Small Cap |
| Northern Small Cap |
Us Small and Northern Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Us Small and Northern Small
The main advantage of trading using opposite Us Small and Northern Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Small position performs unexpectedly, Northern Small 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 Small will offset losses from the drop in Northern Small's long position.| Us Small vs. Lebenthal Lisanti Small | Us Small vs. Hodges Small Cap | Us Small vs. Oberweis Small Cap Opportunities | Us Small vs. Aegis Value Fund |
| Northern Small vs. Vanguard Small Cap Value | Northern Small vs. Vanguard Small Cap Value | Northern Small vs. Us Small Cap | Northern Small vs. Us Targeted Value |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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