Correlation Between Investor and Northern Trust
Can any of the company-specific risk be diversified away by investing in both Investor and Northern Trust 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 Investor and Northern Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Investor AB and Northern Trust, you can compare the effects of market volatilities on Investor and Northern Trust 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 Investor with a short position of Northern Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investor and Northern Trust.
Diversification Opportunities for Investor and Northern Trust
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Investor and Northern is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and Investor 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 Investor AB are associated (or correlated) with Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of Investor i.e., Investor and Northern Trust go up and down completely randomly.
Pair Corralation between Investor and Northern Trust
Assuming the 90 days horizon Investor AB is expected to under-perform the Northern Trust. But the pink sheet apears to be less risky and, when comparing its historical volatility, Investor AB is 1.22 times less risky than Northern Trust. The pink sheet trades about -0.33 of its potential returns per unit of risk. The Northern Trust is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 8,410 in Northern Trust on January 20, 2024 and sell it today you would lose (269.00) from holding Northern Trust or give up 3.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Investor AB vs. Northern Trust
Performance |
| Timeline |
| Investor AB |
| Northern Trust |
Investor and Northern Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investor and Northern Trust
The main advantage of trading using opposite Investor and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investor position performs unexpectedly, Northern Trust 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 Northern Trust will offset losses from the drop in Northern Trust's long position.The idea behind Investor AB and Northern Trust 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.| Northern Trust vs. Bank of New | Northern Trust vs. Invesco Plc | Northern Trust vs. Franklin Resources | Northern Trust vs. T Rowe Price |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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