Correlation Between Northern Small and Western Asset
Can any of the company-specific risk be diversified away by investing in both Northern Small and Western Asset 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 Western Asset 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 Western Asset Smash, you can compare the effects of market volatilities on Northern Small and Western Asset 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 Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Western Asset.
Diversification Opportunities for Northern Small and Western Asset
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Northern and Western is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Western Asset Smash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Smash 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Smash has no effect on the direction of Northern Small i.e., Northern Small and Western Asset go up and down completely randomly.
Pair Corralation between Northern Small and Western Asset
Assuming the 90 days horizon Northern Small Cap is expected to generate 2.02 times more return on investment than Western Asset. However, Northern Small is 2.02 times more volatile than Western Asset Smash. It trades about 0.15 of its potential returns per unit of risk. Western Asset Smash is currently generating about -0.08 per unit of risk. If you would invest 1,413 in Northern Small Cap on September 12, 2024 and sell it today you would earn a total of 173.00 from holding Northern Small Cap or generate 12.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Northern Small Cap vs. Western Asset Smash
Performance |
| Timeline |
| Northern Small Cap |
| Western Asset Smash |
Northern Small and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Western Asset
The main advantage of trading using opposite Northern Small and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset'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 |
| Western Asset vs. General Money Market | Western Asset vs. Franklin Government Money | Western Asset vs. Hewitt Money Market | Western Asset vs. Money Market Obligations |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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