Correlation Between Northern Small and Value Line
Can any of the company-specific risk be diversified away by investing in both Northern Small and Value Line 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 Small and Value Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Small Cap and Value Line Premier, you can compare the effects of market volatilities on Northern Small and Value Line 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 Small with a short position of Value Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Value Line.
Diversification Opportunities for Northern Small and Value Line
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and Value is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Value Line Premier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Premier and Northern Small 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 Small Cap are associated (or correlated) with Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Premier has no effect on the direction of Northern Small i.e., Northern Small and Value Line go up and down completely randomly.
Pair Corralation between Northern Small and Value Line
Assuming the 90 days horizon Northern Small Cap is expected to generate 1.18 times more return on investment than Value Line. However, Northern Small is 1.18 times more volatile than Value Line Premier. It trades about 0.05 of its potential returns per unit of risk. Value Line Premier is currently generating about 0.05 per unit of risk. If you would invest 1,716 in Northern Small Cap on August 30, 2024 and sell it today you would earn a total of 531.00 from holding Northern Small Cap or generate 30.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Small Cap vs. Value Line Premier
Performance |
| Timeline |
| Northern Small Cap |
| Value Line Premier |
Northern Small and Value Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Value Line
The main advantage of trading using opposite Northern Small and Value Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Value Line 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 Value Line will offset losses from the drop in Value Line's long position.| Northern Small vs. Vanguard Small Cap Value | Northern Small vs. Vanguard Small Cap Value | Northern Small vs. Us Small Cap | Northern Small vs. Us Targeted Value |
| Value Line vs. Value Line Larger | Value Line vs. Value Line Small | Value Line vs. Value Line Mid | Value Line vs. Value Line Income |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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