Correlation Between Northern Small and Northern Global
Can any of the company-specific risk be diversified away by investing in both Northern Small and Northern Global 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 Global 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 Global Real, you can compare the effects of market volatilities on Northern Small and Northern Global 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 Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Northern Global.
Diversification Opportunities for Northern Small and Northern Global
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Northern and Northern is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Northern Global Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Global Real 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 Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Global Real has no effect on the direction of Northern Small i.e., Northern Small and Northern Global go up and down completely randomly.
Pair Corralation between Northern Small and Northern Global
Assuming the 90 days horizon Northern Small Cap is expected to generate 2.05 times more return on investment than Northern Global. However, Northern Small is 2.05 times more volatile than Northern Global Real. It trades about 0.22 of its potential returns per unit of risk. Northern Global Real is currently generating about 0.05 per unit of risk. If you would invest 3,010 in Northern Small Cap on August 31, 2024 and sell it today you would earn a total of 237.00 from holding Northern Small Cap or generate 7.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Northern Small Cap vs. Northern Global Real
Performance |
| Timeline |
| Northern Small Cap |
| Northern Global Real |
Northern Small and Northern Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Northern Global
The main advantage of trading using opposite Northern Small and Northern Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Northern Global 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 Global will offset losses from the drop in Northern Global's long position.| Northern Small vs. Ab Select Equity | Northern Small vs. Icon Equity Income | Northern Small vs. The Gabelli Equity | Northern Small vs. Artisan Select Equity |
| Northern Global vs. Vanguard Global Ex Us | Northern Global vs. Vanguard Global Ex Us | Northern Global vs. Global Real Estate | Northern Global vs. Global Real Estate |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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