Correlation Between Northern Small and Prudential Health
Can any of the company-specific risk be diversified away by investing in both Northern Small and Prudential Health 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 Prudential Health 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 Prudential Health Sciences, you can compare the effects of market volatilities on Northern Small and Prudential Health 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 Prudential Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Prudential Health.
Diversification Opportunities for Northern Small and Prudential Health
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Northern and Prudential is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Prudential Health Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Health 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 Prudential Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Health has no effect on the direction of Northern Small i.e., Northern Small and Prudential Health go up and down completely randomly.
Pair Corralation between Northern Small and Prudential Health
Assuming the 90 days horizon Northern Small Cap is expected to generate 1.41 times more return on investment than Prudential Health. However, Northern Small is 1.41 times more volatile than Prudential Health Sciences. It trades about 0.15 of its potential returns per unit of risk. Prudential Health Sciences 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 | 100.0% |
| Values | Daily Returns |
Northern Small Cap vs. Prudential Health Sciences
Performance |
| Timeline |
| Northern Small Cap |
| Prudential Health |
Northern Small and Prudential Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Small and Prudential Health
The main advantage of trading using opposite Northern Small and Prudential Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Small position performs unexpectedly, Prudential Health 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 Prudential Health will offset losses from the drop in Prudential Health'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 |
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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