Correlation Between Northern Mid and Northern Short
Can any of the company-specific risk be diversified away by investing in both Northern Mid and Northern Short 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 Mid and Northern Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Mid Cap and Northern Short Bond, you can compare the effects of market volatilities on Northern Mid and Northern Short 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 Mid with a short position of Northern Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Mid and Northern Short.
Diversification Opportunities for Northern Mid and Northern Short
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Northern and Northern is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Northern Mid Cap and Northern Short Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Short Bond and Northern Mid 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 Mid Cap are associated (or correlated) with Northern Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Short Bond has no effect on the direction of Northern Mid i.e., Northern Mid and Northern Short go up and down completely randomly.
Pair Corralation between Northern Mid and Northern Short
Assuming the 90 days horizon Northern Mid Cap is expected to generate 7.22 times more return on investment than Northern Short. However, Northern Mid is 7.22 times more volatile than Northern Short Bond. It trades about 0.07 of its potential returns per unit of risk. Northern Short Bond is currently generating about 0.11 per unit of risk. If you would invest 1,762 in Northern Mid Cap on August 29, 2024 and sell it today you would earn a total of 690.00 from holding Northern Mid Cap or generate 39.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Mid Cap vs. Northern Short Bond
Performance |
| Timeline |
| Northern Mid Cap |
| Northern Short Bond |
Northern Mid and Northern Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Mid and Northern Short
The main advantage of trading using opposite Northern Mid and Northern Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Mid position performs unexpectedly, Northern Short 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 Short will offset losses from the drop in Northern Short's long position.| Northern Mid vs. Northern Small Cap | Northern Mid vs. Northern International Equity | Northern Mid vs. Northern Stock Index | Northern Mid vs. Northern Emerging Markets |
| Northern Short vs. Northern Bond Index | Northern Short vs. Northern E Bond | Northern Short vs. Northern Arizona Tax Exempt | Northern Short vs. Northern Emerging Markets |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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