Correlation Between Northern Bond and Northern Small
Can any of the company-specific risk be diversified away by investing in both Northern Bond 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 Northern Bond and Northern Small 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 Small Cap, you can compare the effects of market volatilities on Northern Bond 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 Northern Bond with a short position of Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Bond and Northern Small.
Diversification Opportunities for Northern Bond and Northern Small
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Northern and Northern is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Northern Bond Index 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 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 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 Northern Bond i.e., Northern Bond and Northern Small go up and down completely randomly.
Pair Corralation between Northern Bond and Northern Small
Assuming the 90 days horizon Northern Bond is expected to generate 6.15 times less return on investment than Northern Small. But when comparing it to its historical volatility, Northern Bond Index is 3.07 times less risky than Northern Small. It trades about 0.03 of its potential returns per unit of risk. Northern Small Cap is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,178 in Northern Small Cap on August 29, 2024 and sell it today you would earn a total of 435.00 from holding Northern Small Cap or generate 36.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Bond Index vs. Northern Small Cap
Performance |
| Timeline |
| Northern Bond Index |
| Northern Small Cap |
Northern Bond and Northern Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Bond and Northern Small
The main advantage of trading using opposite Northern Bond and Northern Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Bond 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.| Northern Bond vs. Northern Arizona Tax Exempt | Northern Bond vs. Northern Emerging Markets | Northern Bond vs. Northern Fixed Income | Northern Bond vs. Northern Income Equity |
| Northern Small vs. Northern Bond Index | Northern Small vs. Northern E Bond | Northern Small vs. Northern Arizona Tax Exempt | Northern Small vs. Northern Emerging Markets |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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