Correlation Between Freedom Day and Northern Trust

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Can any of the company-specific risk be diversified away by investing in both Freedom Day and Northern Trust 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 Freedom Day and Northern Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freedom Day Dividend and Northern Trust, you can compare the effects of market volatilities on Freedom Day and Northern Trust 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 Freedom Day with a short position of Northern Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freedom Day and Northern Trust.

Diversification Opportunities for Freedom Day and Northern Trust

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Freedom and Northern is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Day Dividend and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and Freedom Day 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 Freedom Day Dividend are associated (or correlated) with Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of Freedom Day i.e., Freedom Day and Northern Trust go up and down completely randomly.

Pair Corralation between Freedom Day and Northern Trust

Given the investment horizon of 90 days Freedom Day Dividend is expected to generate 0.85 times more return on investment than Northern Trust. However, Freedom Day Dividend is 1.18 times less risky than Northern Trust. It trades about 0.09 of its potential returns per unit of risk. Northern Trust is currently generating about 0.06 per unit of risk. If you would invest  2,467  in Freedom Day Dividend on August 30, 2024 and sell it today you would earn a total of  1,048  from holding Freedom Day Dividend or generate 42.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy31.11%
ValuesDaily Returns

Freedom Day Dividend  vs.  Northern Trust

 Performance 
       Timeline  
Freedom Day Dividend 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Day Dividend are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Freedom Day is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
Northern Trust 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Northern Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Northern Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Freedom Day and Northern Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Freedom Day and Northern Trust

The main advantage of trading using opposite Freedom Day and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Day position performs unexpectedly, Northern Trust 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 Trust will offset losses from the drop in Northern Trust's long position.
The idea behind Freedom Day Dividend and Northern Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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