Correlation Between Northern Stock and Sp 500
Can any of the company-specific risk be diversified away by investing in both Northern Stock and Sp 500 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 Sp 500 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 Sp 500 Index, you can compare the effects of market volatilities on Northern Stock and Sp 500 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 Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Stock and Sp 500.
Diversification Opportunities for Northern Stock and Sp 500
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northern and SPFIX is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Northern Stock Index and Sp 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Index 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 Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 Index has no effect on the direction of Northern Stock i.e., Northern Stock and Sp 500 go up and down completely randomly.
Pair Corralation between Northern Stock and Sp 500
Assuming the 90 days horizon Northern Stock is expected to generate 1.44 times less return on investment than Sp 500. In addition to that, Northern Stock is 1.01 times more volatile than Sp 500 Index. It trades about 0.1 of its total potential returns per unit of risk. Sp 500 Index is currently generating about 0.15 per unit of volatility. If you would invest 8,237 in Sp 500 Index on August 25, 2024 and sell it today you would earn a total of 234.00 from holding Sp 500 Index or generate 2.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Stock Index vs. Sp 500 Index
Performance |
| Timeline |
| Northern Stock Index |
| Sp 500 Index |
Northern Stock and Sp 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Stock and Sp 500
The main advantage of trading using opposite Northern Stock and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Stock position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500'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 |
| Sp 500 vs. Sp Midcap Index | Sp 500 vs. Sp Smallcap Index | Sp 500 vs. Deutsche Equity 500 | Sp 500 vs. Dreyfus Institutional Sp |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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