Correlation Between Northern Small and Oklahoma Municipal
Can any of the company-specific risk be diversified away by investing in both Northern Small and Oklahoma Municipal 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 Oklahoma Municipal 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 Oklahoma Municipal Fund, you can compare the effects of market volatilities on Northern Small and Oklahoma Municipal 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 Oklahoma Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Oklahoma Municipal.
Diversification Opportunities for Northern Small and Oklahoma Municipal
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Oklahoma is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Oklahoma Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oklahoma Municipal 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 Oklahoma Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oklahoma Municipal has no effect on the direction of Northern Small i.e., Northern Small and Oklahoma Municipal go up and down completely randomly.
Pair Corralation between Northern Small and Oklahoma Municipal
Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Oklahoma Municipal. In addition to that, Northern Small is 5.91 times more volatile than Oklahoma Municipal Fund. It trades about -0.32 of its total potential returns per unit of risk. Oklahoma Municipal Fund is currently generating about -0.41 per unit of volatility. If you would invest 1,060 in Oklahoma Municipal Fund on October 16, 2024 and sell it today you would lose (25.00) from holding Oklahoma Municipal Fund or give up 2.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Small Cap vs. Oklahoma Municipal Fund
Performance |
| Timeline |
| Northern Small Cap |
| Oklahoma Municipal |
Northern Small and Oklahoma Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Oklahoma Municipal
The main advantage of trading using opposite Northern Small and Oklahoma Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Oklahoma Municipal 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 Oklahoma Municipal will offset losses from the drop in Oklahoma Municipal's long position.| Northern Small vs. Nasdaq 100 2x Strategy | Northern Small vs. Dws Emerging Markets | Northern Small vs. Franklin Emerging Market | Northern Small vs. Western Assets Emerging |
| Oklahoma Municipal vs. Nuveen Strategic Municipal | Oklahoma Municipal vs. Pioneer Amt Free Municipal | Oklahoma Municipal vs. Ab Municipal Bond | Oklahoma Municipal vs. Inverse Government Long |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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