Correlation Between Northern E and Northern Tax
Can any of the company-specific risk be diversified away by investing in both Northern E and Northern Tax 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 E and Northern Tax into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern E Bond and Northern Tax Exempt Fund, you can compare the effects of market volatilities on Northern E and Northern Tax 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 E with a short position of Northern Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern E and Northern Tax.
Diversification Opportunities for Northern E and Northern Tax
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and Northern is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Northern E Bond and Northern Tax Exempt Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Tax Exempt and Northern E 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 E Bond are associated (or correlated) with Northern Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Tax Exempt has no effect on the direction of Northern E i.e., Northern E and Northern Tax go up and down completely randomly.
Pair Corralation between Northern E and Northern Tax
Assuming the 90 days horizon Northern E Bond is expected to generate 1.43 times more return on investment than Northern Tax. However, Northern E is 1.43 times more volatile than Northern Tax Exempt Fund. It trades about 0.06 of its potential returns per unit of risk. Northern Tax Exempt Fund is currently generating about -0.05 per unit of risk. If you would invest 878.00 in Northern E Bond on November 2, 2024 and sell it today you would earn a total of 3.00 from holding Northern E Bond or generate 0.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern E Bond vs. Northern Tax Exempt Fund
Performance |
| Timeline |
| Northern E Bond |
| Northern Tax Exempt |
Northern E and Northern Tax Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern E and Northern Tax
The main advantage of trading using opposite Northern E and Northern Tax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern E position performs unexpectedly, Northern Tax 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 Tax will offset losses from the drop in Northern Tax's long position.| Northern E vs. Shelton E Value | Northern E vs. Scharf Global Opportunity | Northern E vs. Boyd Watterson Limited | Northern E vs. Gmo Quality Fund |
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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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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