Correlation Between BlackRock and Northern Trust

Can any of the company-specific risk be diversified away by investing in both BlackRock and Northern Trust 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 BlackRock and Northern Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BlackRock and Northern Trust, you can compare the effects of market volatilities on BlackRock and Northern Trust 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 BlackRock with a short position of Northern Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BlackRock and Northern Trust.

Diversification Opportunities for BlackRock and Northern Trust

0.93

Correlation Coefficient

BlackRock  Northern Trust

Almost no diversification

The 3 months correlation between BlackRock and Northern is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BlackRock and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and BlackRock 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 BlackRock are associated (or correlated) with Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of BlackRock i.e., BlackRock and Northern Trust go up and down completely randomly.

Pair Corralation between BlackRock and Northern Trust

Assuming the 90 days trading horizon BlackRock is expected to generate 1.24 times less return on investment than Northern Trust. But when comparing it to its historical volatility, BlackRock is 1.26 times less risky than Northern Trust. It trades about 0.26 of its potential returns per unit of risk. Northern Trust is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  8,124  in Northern Trust on September 3, 2024 and sell it today you would earn a total of  2,376  from holding Northern Trust or generate 29.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

BlackRock  vs.  Northern Trust

BlackRock

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, BlackRock reported solid returns over the last few months and may actually be approaching a breakup point.

Northern Trust

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BlackRock and Northern Trust

The main advantage of trading using opposite BlackRock and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BlackRock position performs unexpectedly, Northern Trust 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 Trust will offset losses from the drop in Northern Trust's long position.

The idea behind BlackRock and Northern Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.