Correlation Between Northern Income and Northern International
Can any of the company-specific risk be diversified away by investing in both Northern Income and Northern International 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 Income and Northern International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Income Equity and Northern International Equity, you can compare the effects of market volatilities on Northern Income and Northern International 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 Income with a short position of Northern International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Income and Northern International.
Diversification Opportunities for Northern Income and Northern International
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Northern is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Northern Income Equity and Northern International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern International and Northern Income 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 Income Equity are associated (or correlated) with Northern International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern International has no effect on the direction of Northern Income i.e., Northern Income and Northern International go up and down completely randomly.
Pair Corralation between Northern Income and Northern International
Assuming the 90 days horizon Northern Income Equity is expected to generate 0.95 times more return on investment than Northern International. However, Northern Income Equity is 1.05 times less risky than Northern International. It trades about 0.1 of its potential returns per unit of risk. Northern International Equity is currently generating about 0.05 per unit of risk. If you would invest 1,199 in Northern Income Equity on November 2, 2024 and sell it today you would earn a total of 521.00 from holding Northern Income Equity or generate 43.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Income Equity vs. Northern International Equity
Performance |
| Timeline |
| Northern Income Equity |
| Northern International |
Northern Income and Northern International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Income and Northern International
The main advantage of trading using opposite Northern Income and Northern International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Income position performs unexpectedly, Northern International 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 International will offset losses from the drop in Northern International's long position.| Northern Income vs. Northern High Yield | Northern Income vs. Northern International Equity | Northern Income vs. Northern Large Cap | Northern Income vs. Northern Stock Index |
| Northern International vs. Gabelli Global Financial | Northern International vs. Financial Industries Fund | Northern International vs. 1919 Financial Services | Northern International vs. John Hancock Money |
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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