Correlation Between Northern Stock and Northern California
Can any of the company-specific risk be diversified away by investing in both Northern Stock 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 Stock 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 Stock Index and Northern California Intermediate, you can compare the effects of market volatilities on Northern Stock 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 Stock with a short position of Northern California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Stock and Northern California.
Diversification Opportunities for Northern Stock and Northern California
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Northern and Northern is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Northern Stock Index 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 Stock 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 Stock Index 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 Stock i.e., Northern Stock and Northern California go up and down completely randomly.
Pair Corralation between Northern Stock and Northern California
Assuming the 90 days horizon Northern Stock Index is expected to generate 4.2 times more return on investment than Northern California. However, Northern Stock is 4.2 times more volatile than Northern California Intermediate. It trades about 0.11 of its potential returns per unit of risk. Northern California Intermediate is currently generating about 0.07 per unit of risk. If you would invest 4,022 in Northern Stock Index on September 3, 2024 and sell it today you would earn a total of 2,187 from holding Northern Stock Index or generate 54.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Stock Index vs. Northern California Intermedia
Performance |
| Timeline |
| Northern Stock Index |
| Northern California |
Northern Stock and Northern California Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Stock and Northern California
The main advantage of trading using opposite Northern Stock and Northern California positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Stock 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 Stock vs. New World Fund | Northern Stock vs. Washington Mutual Investors | Northern Stock vs. Smallcap World Fund | Northern Stock vs. Capital World Growth |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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