Correlation Between Cabot and Northern Technologies

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

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

Diversification Opportunities for Cabot and Northern Technologies

0.06

Correlation Coefficient

Cabot  Northern Technologies

Significant diversification

The 3 months correlation between Cabot and Northern is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Northern Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Technologies and Cabot 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 Cabot are associated (or correlated) with Northern Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Technologies has no effect on the direction of Cabot i.e., Cabot and Northern Technologies go up and down completely randomly.

Pair Corralation between Cabot and Northern Technologies

Considering the 90-day investment horizon Cabot is expected to generate 1.11 times less return on investment than Northern Technologies. But when comparing it to its historical volatility, Cabot is 1.49 times less risky than Northern Technologies. It trades about 0.05 of its potential returns per unit of risk. Northern Technologies is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,307  in Northern Technologies on August 30, 2024 and sell it today you would earn a total of  47.00  from holding Northern Technologies or generate 3.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Cabot  vs.  Northern Technologies

Cabot

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Cabot is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Northern Technologies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Northern Technologies is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cabot and Northern Technologies

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

The idea behind Cabot and Northern Technologies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.