Correlation Between Northern Small and City National

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

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

Diversification Opportunities for Northern Small and City National

0.49

Correlation Coefficient

Northern Small  City National

Very weak diversification

The 3 months correlation between Northern and City is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and City National Rochdale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City National Rochdale and Northern Small 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 Small Cap are associated (or correlated) with City National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City National Rochdale has no effect on the direction of Northern Small i.e., Northern Small and City National go up and down completely randomly.

Pair Corralation between Northern Small and City National

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the City National. In addition to that, Northern Small is 17.55 times more volatile than City National Rochdale. It trades about -0.02 of its total potential returns per unit of risk. City National Rochdale is currently generating about 0.13 per unit of volatility. If you would invest  1,967  in City National Rochdale on September 20, 2024 and sell it today you would earn a total of  13.00  from holding City National Rochdale or generate 0.66% return on investment over 90 days.

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

Northern Small Cap  vs.  City National Rochdale

Northern Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

City National Rochdale

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in City National Rochdale are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, City National 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 Small and City National

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

The idea behind Northern Small Cap and City National Rochdale 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.