Correlation Between Northern Small and Northern Fixed
Can any of the company-specific risk be diversified away by investing in both Northern Small and Northern Fixed 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 Fixed 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 Fixed Income, you can compare the effects of market volatilities on Northern Small and Northern Fixed 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 Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Northern Fixed.
Diversification Opportunities for Northern Small and Northern Fixed
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Northern and Northern is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Northern Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Fixed Income 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 Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Fixed Income has no effect on the direction of Northern Small i.e., Northern Small and Northern Fixed go up and down completely randomly.
Pair Corralation between Northern Small and Northern Fixed
Assuming the 90 days horizon Northern Small Cap is expected to generate 4.11 times more return on investment than Northern Fixed. However, Northern Small is 4.11 times more volatile than Northern Fixed Income. It trades about 0.11 of its potential returns per unit of risk. Northern Fixed Income is currently generating about -0.23 per unit of risk. If you would invest 1,477 in Northern Small Cap on August 25, 2024 and sell it today you would earn a total of 96.00 from holding Northern Small Cap or generate 6.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Small Cap vs. Northern Fixed Income
Performance |
| Timeline |
| Northern Small Cap |
| Northern Fixed Income |
Northern Small and Northern Fixed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Northern Fixed
The main advantage of trading using opposite Northern Small and Northern Fixed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Northern Fixed 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 Fixed will offset losses from the drop in Northern Fixed'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 Fixed vs. Northern Bond Index | Northern Fixed vs. Northern E Bond | Northern Fixed vs. Northern Arizona Tax Exempt | Northern Fixed 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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