Correlation Between Northern Large and Pear Tree

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

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

Diversification Opportunities for Northern Large and Pear Tree

-0.54

Correlation Coefficient

Northern Large  Pear Tree

Excellent diversification

The 3 months correlation between Northern and Pear is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Northern Large Cap and Pear Tree Polaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Polaris and Northern Large 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 Northern Large Cap are associated (or correlated) with Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Polaris has no effect on the direction of Northern Large i.e., Northern Large and Pear Tree go up and down completely randomly.

Pair Corralation between Northern Large and Pear Tree

Assuming the 90 days horizon Northern Large Cap is expected to generate 1.02 times more return on investment than Pear Tree. However, Northern Large is 1.02 times more volatile than Pear Tree Polaris. It trades about 0.15 of its potential returns per unit of risk. Pear Tree Polaris is currently generating about -0.1 per unit of risk. If you would invest  2,188  in Northern Large Cap on September 2, 2024 and sell it today you would earn a total of  156.00  from holding Northern Large Cap or generate 7.13% return on investment over 90 days.

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

Northern Large Cap  vs.  Pear Tree Polaris

Northern Large Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Large Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Northern Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pear Tree Polaris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pear Tree Polaris has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pear Tree is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Large and Pear Tree

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

The idea behind Northern Large Cap and Pear Tree Polaris 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.