Correlation Between Financial Industries and Northern Small
Can any of the company-specific risk be diversified away by investing in both Financial Industries 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 Financial Industries and Northern Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and Northern Small Cap, you can compare the effects of market volatilities on Financial Industries 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 Financial Industries with a short position of Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and Northern Small.
Diversification Opportunities for Financial Industries and Northern Small
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Financial and Northern is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund 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 Financial Industries 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 Financial Industries Fund 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 Financial Industries i.e., Financial Industries and Northern Small go up and down completely randomly.
Pair Corralation between Financial Industries and Northern Small
Assuming the 90 days horizon Financial Industries Fund is expected to generate 1.1 times more return on investment than Northern Small. However, Financial Industries is 1.1 times more volatile than Northern Small Cap. It trades about 0.22 of its potential returns per unit of risk. Northern Small Cap is currently generating about 0.15 per unit of risk. If you would invest 1,818 in Financial Industries Fund on October 28, 2024 and sell it today you would earn a total of 84.00 from holding Financial Industries Fund or generate 4.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Industries Fund vs. Northern Small Cap
Performance |
| Timeline |
| Financial Industries |
| Northern Small Cap |
Financial Industries and Northern Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and Northern Small
The main advantage of trading using opposite Financial Industries and Northern Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries 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.| Financial Industries vs. Qs Growth Fund | Financial Industries vs. Small Midcap Dividend Income | Financial Industries vs. Credit Suisse Floating | Financial Industries vs. Arrow Dwa Balanced |
| Northern Small vs. Fidelity Sai Convertible | Northern Small vs. Calamos Dynamic Convertible | Northern Small vs. Lord Abbett Convertible | Northern Small vs. Advent Claymore Convertible |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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