Correlation Between Northern Trust and Siemens Energy

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

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

Diversification Opportunities for Northern Trust and Siemens Energy

0.9

Correlation Coefficient

Northern Trust  Siemens Energy

Almost no diversification

The 3 months correlation between Northern and Siemens is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and Siemens Energy AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens Energy AG and Northern Trust 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 Trust are associated (or correlated) with Siemens Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens Energy AG has no effect on the direction of Northern Trust i.e., Northern Trust and Siemens Energy go up and down completely randomly.

Pair Corralation between Northern Trust and Siemens Energy

Assuming the 90 days horizon Northern Trust is expected to under-perform the Siemens Energy. But the stock apears to be less risky and, when comparing its historical volatility, Northern Trust is 1.65 times less risky than Siemens Energy. The stock trades about -0.21 of its potential returns per unit of risk. The Siemens Energy AG is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,835  in Siemens Energy AG on September 23, 2024 and sell it today you would earn a total of  235.00  from holding Siemens Energy AG or generate 4.86% return on investment over 90 days.

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

Northern Trust  vs.  Siemens Energy AG

Northern Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Siemens Energy AG

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Siemens Energy AG are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Siemens Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Trust and Siemens Energy

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

The idea behind Northern Trust and Siemens Energy AG 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.