Correlation Between Northern Bond and Northern International
Can any of the company-specific risk be diversified away by investing in both Northern Bond and Northern International 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 Northern International 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 Northern International Equity, you can compare the effects of market volatilities on Northern Bond and Northern International 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 Northern International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Bond and Northern International.
Diversification Opportunities for Northern Bond and Northern International
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Northern is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Northern Bond Index and Northern International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern 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 Northern International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern International has no effect on the direction of Northern Bond i.e., Northern Bond and Northern International go up and down completely randomly.
Pair Corralation between Northern Bond and Northern International
Assuming the 90 days horizon Northern Bond is expected to generate 5.67 times less return on investment than Northern International. But when comparing it to its historical volatility, Northern Bond Index is 2.2 times less risky than Northern International. It trades about 0.02 of its potential returns per unit of risk. Northern International Equity is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 981.00 in Northern International Equity on August 25, 2024 and sell it today you would earn a total of 64.00 from holding Northern International Equity or generate 6.52% 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. Northern International Equity
Performance |
| Timeline |
| Northern Bond Index |
| Northern International |
Northern Bond and Northern International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Bond and Northern International
The main advantage of trading using opposite Northern Bond and Northern International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Bond position performs unexpectedly, Northern International 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 International will offset losses from the drop in Northern International's long position.| Northern Bond vs. Ab All Market | Northern Bond vs. Doubleline Emerging Markets | Northern Bond vs. Western Asset Diversified | Northern Bond vs. Sp Midcap Index |
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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