Correlation Between Northern Stock and Northern International
Can any of the company-specific risk be diversified away by investing in both Northern Stock and Northern International 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 International 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 International Equity, you can compare the effects of market volatilities on Northern Stock and Northern International 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 International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Stock and Northern International.
Diversification Opportunities for Northern Stock and Northern International
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Northern and Northern is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Northern Stock Index and Northern International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern International has no effect on the direction of Northern Stock i.e., Northern Stock and Northern International go up and down completely randomly.
Pair Corralation between Northern Stock and Northern International
Assuming the 90 days horizon Northern Stock Index is expected to generate 0.95 times more return on investment than Northern International. However, Northern Stock Index is 1.05 times less risky than Northern International. It trades about 0.16 of its potential returns per unit of risk. Northern International Equity is currently generating about -0.13 per unit of risk. If you would invest 5,737 in Northern Stock Index on August 29, 2024 and sell it today you would earn a total of 460.00 from holding Northern Stock Index or generate 8.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Stock Index vs. Northern International Equity
Performance |
| Timeline |
| Northern Stock Index |
| Northern International |
Northern Stock and Northern International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Stock and Northern International
The main advantage of trading using opposite Northern Stock and Northern International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Stock position performs unexpectedly, Northern International 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 International will offset losses from the drop in Northern International's long position.| Northern Stock vs. Northern Small Cap | Northern Stock vs. Northern International Equity | Northern Stock vs. Northern Mid Cap | Northern Stock vs. Northern Bond Index |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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