Correlation Between Northern Bond and Active M
Can any of the company-specific risk be diversified away by investing in both Northern Bond and Active M 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 Bond and Active M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Bond Index and Active M International, you can compare the effects of market volatilities on Northern Bond and Active M 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 Bond with a short position of Active M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Bond and Active M.
Diversification Opportunities for Northern Bond and Active M
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Active is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Northern Bond Index and Active M International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Active M International and Northern Bond 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 Bond Index are associated (or correlated) with Active M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Active M International has no effect on the direction of Northern Bond i.e., Northern Bond and Active M go up and down completely randomly.
Pair Corralation between Northern Bond and Active M
Assuming the 90 days horizon Northern Bond Index is expected to generate 0.49 times more return on investment than Active M. However, Northern Bond Index is 2.04 times less risky than Active M. It trades about 0.02 of its potential returns per unit of risk. Active M International is currently generating about -0.16 per unit of risk. If you would invest 918.00 in Northern Bond Index on August 29, 2024 and sell it today you would earn a total of 1.00 from holding Northern Bond Index or generate 0.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Bond Index vs. Active M International
Performance |
| Timeline |
| Northern Bond Index |
| Active M International |
Northern Bond and Active M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Bond and Active M
The main advantage of trading using opposite Northern Bond and Active M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Bond position performs unexpectedly, Active M 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 Active M will offset losses from the drop in Active M's long position.| Northern Bond vs. Vanguard Total Bond | Northern Bond vs. Vanguard Total Bond | Northern Bond vs. Vanguard Total Bond | Northern Bond vs. Vanguard Total Bond |
| Active M vs. Aqr Large Cap | Active M vs. Vanguard Equity Income | Active M vs. Dana Large Cap | Active M vs. Fidelity Series 1000 |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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