Correlation Between Goldman Sachs and Northern Trust

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

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

Diversification Opportunities for Goldman Sachs and Northern Trust

-0.37

Correlation Coefficient

Goldman Sachs  Northern Trust

Very good diversification

The 3 months correlation between Goldman and Northern is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Group and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and Goldman Sachs 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 Goldman Sachs Group 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 Goldman Sachs i.e., Goldman Sachs and Northern Trust go up and down completely randomly.

Pair Corralation between Goldman Sachs and Northern Trust

Allowing for the 90-day total investment horizon Goldman Sachs Group is expected to generate 2.15 times more return on investment than Northern Trust. However, Goldman Sachs is 2.15 times more volatile than Northern Trust. It trades about 0.17 of its potential returns per unit of risk. Northern Trust is currently generating about 0.0 per unit of risk. If you would invest  48,746  in Goldman Sachs Group on August 31, 2024 and sell it today you would earn a total of  11,797  from holding Goldman Sachs Group or generate 24.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Goldman Sachs Group  vs.  Northern Trust

Goldman Sachs Group

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Goldman Sachs unveiled solid returns over the last few months and may actually be approaching a breakup point.

Northern Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Northern Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Goldman Sachs and Northern Trust

The main advantage of trading using opposite Goldman Sachs and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goldman Sachs 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 Goldman Sachs Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.