Correlation Between Northern Large and Northern Small
Can any of the company-specific risk be diversified away by investing in both Northern Large and Northern Small 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 Large and Northern Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Large Cap and Northern Small Cap, you can compare the effects of market volatilities on Northern Large and Northern Small 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 Large with a short position of Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Large and Northern Small.
Diversification Opportunities for Northern Large and Northern Small
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and Northern is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Northern Large Cap and Northern Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Small Cap and Northern Large 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 Large Cap are associated (or correlated) with Northern Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Small Cap has no effect on the direction of Northern Large i.e., Northern Large and Northern Small go up and down completely randomly.
Pair Corralation between Northern Large and Northern Small
Assuming the 90 days horizon Northern Large is expected to generate 1.61 times less return on investment than Northern Small. But when comparing it to its historical volatility, Northern Large Cap is 2.01 times less risky than Northern Small. It trades about 0.3 of its potential returns per unit of risk. Northern Small Cap is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 2,057 in Northern Small Cap on September 1, 2024 and sell it today you would earn a total of 190.00 from holding Northern Small Cap or generate 9.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Large Cap vs. Northern Small Cap
Performance |
| Timeline |
| Northern Large Cap |
| Northern Small Cap |
Northern Large and Northern Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Large and Northern Small
The main advantage of trading using opposite Northern Large and Northern Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Large position performs unexpectedly, Northern Small 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 Small will offset losses from the drop in Northern Small's long position.| Northern Large vs. Dodge Cox Stock | Northern Large vs. Tax Managed Large Cap | Northern Large vs. M Large Cap | Northern Large vs. Dana Large Cap |
| Northern Small vs. American Beacon Large | Northern Small vs. Harbor International Fund | Northern Small vs. Credit Suisse Modity | Northern Small vs. Metropolitan West Total |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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