Correlation Between Northern Stock and Deutsche

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

By analyzing existing cross correlation between Northern Stock Index and Deutsche Sp 500, you can compare the effects of market volatilities on Northern Stock and Deutsche 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 Stock with a short position of Deutsche. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Stock and Deutsche.

Diversification Opportunities for Northern Stock and Deutsche

1.0

Correlation Coefficient

Northern Stock  Deutsche

No risk reduction

The 3 months correlation between Northern and Deutsche is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Northern Stock Index and Deutsche Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Sp 500 and Northern Stock 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 Stock Index are associated (or correlated) with Deutsche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Sp 500 has no effect on the direction of Northern Stock i.e., Northern Stock and Deutsche go up and down completely randomly.

Pair Corralation between Northern Stock and Deutsche

Assuming the 90 days horizon Northern Stock Index is expected to generate 1.01 times more return on investment than Deutsche. However, Northern Stock is 1.01 times more volatile than Deutsche Sp 500. It trades about 0.22 of its potential returns per unit of risk. Deutsche Sp 500 is currently generating about 0.22 per unit of risk. If you would invest  5,648  in Northern Stock Index on September 5, 2024 and sell it today you would earn a total of  580.00  from holding Northern Stock Index or generate 10.27% return on investment over 90 days.

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

Northern Stock Index  vs.  Deutsche Sp 500

Northern Stock Index

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Stock Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Northern Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deutsche Sp 500

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Sp 500 are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Deutsche may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Northern Stock and Deutsche

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

The idea behind Northern Stock Index and Deutsche Sp 500 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.