Correlation Between Northern Oil and Federal National
Can any of the company-specific risk be diversified away by investing in both Northern Oil and Federal National 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 Oil and Federal National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Oil Gas and Federal National Mortgage, you can compare the effects of market volatilities on Northern Oil and Federal National 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 Oil with a short position of Federal National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Oil and Federal National.
Diversification Opportunities for Northern Oil and Federal National
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Federal is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and Federal National Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal National Mortgage and Northern Oil 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 Oil Gas are associated (or correlated) with Federal National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal National Mortgage has no effect on the direction of Northern Oil i.e., Northern Oil and Federal National go up and down completely randomly.
Pair Corralation between Northern Oil and Federal National
Considering the 90-day investment horizon Northern Oil is expected to generate 5.88 times less return on investment than Federal National. But when comparing it to its historical volatility, Northern Oil Gas is 4.88 times less risky than Federal National. It trades about 0.26 of its potential returns per unit of risk. Federal National Mortgage is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 730.00 in Federal National Mortgage on August 25, 2024 and sell it today you would earn a total of 830.00 from holding Federal National Mortgage or generate 113.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Oil Gas vs. Federal National Mortgage
Performance |
| Timeline |
| Northern Oil Gas |
| Federal National Mortgage |
Northern Oil and Federal National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Oil and Federal National
The main advantage of trading using opposite Northern Oil and Federal National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Oil position performs unexpectedly, Federal National 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 Federal National will offset losses from the drop in Federal National's long position.| Northern Oil vs. Vital Energy | Northern Oil vs. Comstock Resources | Northern Oil vs. Magnolia Oil Gas | Northern Oil vs. Obsidian Energy |
| Federal National vs. Federal Home Loan | Federal National vs. Federal Home Loan | Federal National vs. Federal Home Loan | Federal National vs. Federal Home Loan |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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