Correlation Between Nasdaq-100(r) and Northern Small
Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Northern Small 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 Nasdaq-100(r) and Northern Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Northern Small Cap, you can compare the effects of market volatilities on Nasdaq-100(r) and Northern Small 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 Nasdaq-100(r) with a short position of Northern Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Northern Small.
Diversification Opportunities for Nasdaq-100(r) and Northern Small
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nasdaq-100(r) and Northern is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Northern Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Small Cap and Nasdaq-100(r) 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 Nasdaq 100 2x Strategy are associated (or correlated) with Northern Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Small Cap has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Northern Small go up and down completely randomly.
Pair Corralation between Nasdaq-100(r) and Northern Small
Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.94 times more return on investment than Northern Small. However, Nasdaq-100(r) is 1.94 times more volatile than Northern Small Cap. It trades about -0.03 of its potential returns per unit of risk. Northern Small Cap is currently generating about -0.2 per unit of risk. If you would invest 58,042 in Nasdaq 100 2x Strategy on October 30, 2024 and sell it today you would lose (2,820) from holding Nasdaq 100 2x Strategy or give up 4.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq 100 2x Strategy vs. Northern Small Cap
Performance |
| Timeline |
| Nasdaq 100 2x |
| Northern Small Cap |
Nasdaq-100(r) and Northern Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq-100(r) and Northern Small
The main advantage of trading using opposite Nasdaq-100(r) and Northern Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, Northern Small 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 Small will offset losses from the drop in Northern Small's long position.| Nasdaq-100(r) vs. Sp 500 2x | Nasdaq-100(r) vs. Inverse Nasdaq 100 2x | Nasdaq-100(r) vs. Inverse Sp 500 | Nasdaq-100(r) vs. Ultra Nasdaq 100 Profunds |
| Northern Small vs. Dreyfus Government Cash | Northern Small vs. Davis Government Bond | Northern Small vs. Intermediate Government Bond | Northern Small vs. Lord Abbett Government |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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