Correlation Between Northern Fixed and Northern Short
Can any of the company-specific risk be diversified away by investing in both Northern Fixed and Northern Short 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 Fixed and Northern Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Fixed Income and Northern Short Bond, you can compare the effects of market volatilities on Northern Fixed and Northern Short 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 Fixed with a short position of Northern Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Fixed and Northern Short.
Diversification Opportunities for Northern Fixed and Northern Short
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Northern is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Northern Fixed Income and Northern Short Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Short Bond and Northern Fixed 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 Fixed Income are associated (or correlated) with Northern Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Short Bond has no effect on the direction of Northern Fixed i.e., Northern Fixed and Northern Short go up and down completely randomly.
Pair Corralation between Northern Fixed and Northern Short
Assuming the 90 days horizon Northern Fixed Income is expected to generate 2.75 times more return on investment than Northern Short. However, Northern Fixed is 2.75 times more volatile than Northern Short Bond. It trades about 0.07 of its potential returns per unit of risk. Northern Short Bond is currently generating about 0.14 per unit of risk. If you would invest 841.00 in Northern Fixed Income on August 29, 2024 and sell it today you would earn a total of 51.00 from holding Northern Fixed Income or generate 6.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Fixed Income vs. Northern Short Bond
Performance |
| Timeline |
| Northern Fixed Income |
| Northern Short Bond |
Northern Fixed and Northern Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Fixed and Northern Short
The main advantage of trading using opposite Northern Fixed and Northern Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Fixed position performs unexpectedly, Northern Short 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 Short will offset losses from the drop in Northern Short's long position.| Northern Fixed vs. Transamerica Cleartrack Retirement | Northern Fixed vs. Lifestyle Ii Moderate | Northern Fixed vs. Moderately Aggressive Balanced | Northern Fixed vs. Saat Moderate Strategy |
| Northern Short vs. Northern Bond Index | Northern Short vs. Northern E Bond | Northern Short vs. Northern Arizona Tax Exempt | Northern Short 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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