Correlation Between Northern Small and Amer Beacon
Can any of the company-specific risk be diversified away by investing in both Northern Small and Amer Beacon 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 Amer Beacon 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 Amer Beacon Ark, you can compare the effects of market volatilities on Northern Small and Amer Beacon 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 Amer Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Amer Beacon.
Diversification Opportunities for Northern Small and Amer Beacon
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between NORTHERN and Amer is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Amer Beacon Ark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amer Beacon Ark 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 Amer Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amer Beacon Ark has no effect on the direction of Northern Small i.e., Northern Small and Amer Beacon go up and down completely randomly.
Pair Corralation between Northern Small and Amer Beacon
Assuming the 90 days horizon Northern Small Cap is expected to generate 0.61 times more return on investment than Amer Beacon. However, Northern Small Cap is 1.64 times less risky than Amer Beacon. It trades about 0.09 of its potential returns per unit of risk. Amer Beacon Ark is currently generating about 0.05 per unit of risk. If you would invest 1,237 in Northern Small Cap on September 4, 2024 and sell it today you would earn a total of 371.00 from holding Northern Small Cap or generate 29.99% 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. Amer Beacon Ark
Performance |
| Timeline |
| Northern Small Cap |
| Amer Beacon Ark |
Northern Small and Amer Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Amer Beacon
The main advantage of trading using opposite Northern Small and Amer Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Amer Beacon 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 Amer Beacon will offset losses from the drop in Amer Beacon's long position.| Northern Small vs. Northern Bond Index | Northern Small vs. Northern E Bond | Northern Small vs. Northern Fixed Income | Northern Small vs. Northern Income Equity |
| Amer Beacon vs. Fuller Thaler Behavioral | Amer Beacon vs. Principal Lifetime Hybrid | Amer Beacon vs. Northern Small Cap | Amer Beacon vs. Tax Managed Mid Small |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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