Correlation Between Northern Trust and Federated Investors

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

By analyzing existing cross correlation between Northern Trust and Federated Investors B, you can compare the effects of market volatilities on Northern Trust and Federated Investors 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 Federated Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Trust and Federated Investors.

Diversification Opportunities for Northern Trust and Federated Investors

0.97

Correlation Coefficient

Northern Trust  Federated Investors

Almost no diversification

The 3 months correlation between Northern and Federated is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and Federated Investors B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Investors 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 Federated Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Investors has no effect on the direction of Northern Trust i.e., Northern Trust and Federated Investors go up and down completely randomly.

Pair Corralation between Northern Trust and Federated Investors

Given the investment horizon of 90 days Northern Trust is expected to generate 1.01 times less return on investment than Federated Investors. In addition to that, Northern Trust is 1.23 times more volatile than Federated Investors B. It trades about 0.23 of its total potential returns per unit of risk. Federated Investors B is currently generating about 0.28 per unit of volatility. If you would invest  3,454  in Federated Investors B on September 3, 2024 and sell it today you would earn a total of  817.00  from holding Federated Investors B or generate 23.65% 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.  Federated Investors B

Northern Trust

Risk-Adjusted Performance

17 of 100

Solid

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

Federated Investors

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Investors B are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, Federated Investors demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Trust and Federated Investors

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

The idea behind Northern Trust and Federated Investors B 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.