Correlation Between Northern Intermediate and Northern California
Can any of the company-specific risk be diversified away by investing in both Northern Intermediate and Northern California 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 Intermediate and Northern California into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Intermediate Tax Exempt and Northern California Intermediate, you can compare the effects of market volatilities on Northern Intermediate and Northern California 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 Intermediate with a short position of Northern California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Intermediate and Northern California.
Diversification Opportunities for Northern Intermediate and Northern California
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Northern and Northern is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Northern Intermediate Tax Exem and Northern California Intermedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern California and Northern Intermediate 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 Intermediate Tax Exempt are associated (or correlated) with Northern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern California has no effect on the direction of Northern Intermediate i.e., Northern Intermediate and Northern California go up and down completely randomly.
Pair Corralation between Northern Intermediate and Northern California
Assuming the 90 days horizon Northern Intermediate is expected to generate 1.04 times less return on investment than Northern California. But when comparing it to its historical volatility, Northern Intermediate Tax Exempt is 1.04 times less risky than Northern California. It trades about 0.07 of its potential returns per unit of risk. Northern California Intermediate is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 933.00 in Northern California Intermediate on September 3, 2024 and sell it today you would earn a total of 65.00 from holding Northern California Intermediate or generate 6.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Intermediate Tax Exem vs. Northern California Intermedia
Performance |
| Timeline |
| Northern Intermediate |
| Northern California |
Northern Intermediate and Northern California Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Intermediate and Northern California
The main advantage of trading using opposite Northern Intermediate and Northern California positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Intermediate position performs unexpectedly, Northern California 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 California will offset losses from the drop in Northern California's long position.| Northern Intermediate vs. Northern Tax Exempt Fund | Northern Intermediate vs. Northern High Yield | Northern Intermediate vs. Northern International Equity | Northern Intermediate vs. Northern Mid Cap |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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