Correlation Between Nicholas Fund and North Star

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

By analyzing existing cross correlation between Nicholas Fund Inc and North Star Micro, you can compare the effects of market volatilities on Nicholas Fund and North Star 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 Nicholas Fund with a short position of North Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nicholas Fund and North Star.

Diversification Opportunities for Nicholas Fund and North Star

0.88

Correlation Coefficient

Nicholas Fund  North Star

Very poor diversification

The 3 months correlation between Nicholas and North is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Nicholas Fund Inc and North Star Micro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Star Micro and Nicholas Fund 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 Nicholas Fund Inc are associated (or correlated) with North Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Star Micro has no effect on the direction of Nicholas Fund i.e., Nicholas Fund and North Star go up and down completely randomly.

Pair Corralation between Nicholas Fund and North Star

Assuming the 90 days horizon Nicholas Fund is expected to generate 3.36 times less return on investment than North Star. But when comparing it to its historical volatility, Nicholas Fund Inc is 1.54 times less risky than North Star. It trades about 0.02 of its potential returns per unit of risk. North Star Micro is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,902  in North Star Micro on September 20, 2024 and sell it today you would earn a total of  431.00  from holding North Star Micro or generate 11.05% return on investment over 90 days.

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

Nicholas Fund Inc  vs.  North Star Micro

Nicholas Fund

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nicholas Fund Inc are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Nicholas Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

North Star Micro

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in North Star Micro are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, North Star is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nicholas Fund and North Star

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

The idea behind Nicholas Fund Inc and North Star Micro 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.