Correlation Between Northern Small and Northern Mid
Can any of the company-specific risk be diversified away by investing in both Northern Small and Northern Mid 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 Northern Mid 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 Northern Mid Cap, you can compare the effects of market volatilities on Northern Small and Northern Mid 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 Northern Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Northern Mid.
Diversification Opportunities for Northern Small and Northern Mid
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northern and Northern is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Northern Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Mid Cap 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 Northern Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Mid Cap has no effect on the direction of Northern Small i.e., Northern Small and Northern Mid go up and down completely randomly.
Pair Corralation between Northern Small and Northern Mid
Assuming the 90 days horizon Northern Small is expected to generate 1.47 times less return on investment than Northern Mid. But when comparing it to its historical volatility, Northern Small Cap is 1.15 times less risky than Northern Mid. It trades about 0.09 of its potential returns per unit of risk. Northern Mid Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,334 in Northern Mid Cap on September 18, 2024 and sell it today you would earn a total of 48.00 from holding Northern Mid Cap or generate 2.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Small Cap vs. Northern Mid Cap
Performance |
| Timeline |
| Northern Small Cap |
| Northern Mid Cap |
Northern Small and Northern Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Northern Mid
The main advantage of trading using opposite Northern Small and Northern Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Northern Mid 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 Mid will offset losses from the drop in Northern Mid's long position.| Northern Small vs. Northern Bond Index | Northern Small vs. Northern E Bond | Northern Small vs. Northern Arizona Tax Exempt | Northern Small vs. Northern Emerging Markets |
| Northern Mid vs. Northern Small Cap | Northern Mid vs. Northern International Equity | Northern Mid vs. Northern Stock Index | Northern Mid 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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