Correlation Between Northern Fixed and Northern Stock
Can any of the company-specific risk be diversified away by investing in both Northern Fixed and Northern Stock 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 Stock 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 Stock Index, you can compare the effects of market volatilities on Northern Fixed and Northern Stock 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 Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Fixed and Northern Stock.
Diversification Opportunities for Northern Fixed and Northern Stock
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Northern and Northern is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Northern Fixed Income and Northern Stock Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Stock Index 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 Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Stock Index has no effect on the direction of Northern Fixed i.e., Northern Fixed and Northern Stock go up and down completely randomly.
Pair Corralation between Northern Fixed and Northern Stock
Assuming the 90 days horizon Northern Fixed is expected to generate 10.22 times less return on investment than Northern Stock. But when comparing it to its historical volatility, Northern Fixed Income is 2.3 times less risky than Northern Stock. It trades about 0.03 of its potential returns per unit of risk. Northern Stock Index is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 4,854 in Northern Stock Index on September 19, 2024 and sell it today you would earn a total of 1,378 from holding Northern Stock Index or generate 28.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Fixed Income vs. Northern Stock Index
Performance |
| Timeline |
| Northern Fixed Income |
| Northern Stock Index |
Northern Fixed and Northern Stock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Fixed and Northern Stock
The main advantage of trading using opposite Northern Fixed and Northern Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Fixed position performs unexpectedly, Northern Stock 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 Stock will offset losses from the drop in Northern Stock's long position.| Northern Fixed vs. Northern Bond Index | Northern Fixed vs. Northern E Bond | Northern Fixed vs. Northern Arizona Tax Exempt | Northern Fixed vs. Northern Emerging Markets |
| Northern Stock vs. Northern Small Cap | Northern Stock vs. Northern International Equity | Northern Stock vs. Northern Mid Cap | Northern Stock vs. Northern Bond 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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