Correlation Between Northern Trust and Investor

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Can any of the company-specific risk be diversified away by investing in both Northern Trust and Investor 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 Investor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Trust and Investor AB, you can compare the effects of market volatilities on Northern Trust and Investor 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 Investor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Trust and Investor.

Diversification Opportunities for Northern Trust and Investor

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Northern and Investor is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and Investor AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investor AB 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 Investor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investor AB has no effect on the direction of Northern Trust i.e., Northern Trust and Investor go up and down completely randomly.

Pair Corralation between Northern Trust and Investor

Given the investment horizon of 90 days Northern Trust is expected to generate 2.14 times less return on investment than Investor. In addition to that, Northern Trust is 1.21 times more volatile than Investor AB. It trades about 0.02 of its total potential returns per unit of risk. Investor AB is currently generating about 0.06 per unit of volatility. If you would invest  2,056  in Investor AB on December 30, 2023 and sell it today you would earn a total of  439.00  from holding Investor AB or generate 21.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Northern Trust  vs.  Investor AB

 Performance 
       Timeline  
Northern Trust 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Northern Trust may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Investor AB 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Investor AB are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Investor may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Northern Trust and Investor Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Northern Trust and Investor

The main advantage of trading using opposite Northern Trust and Investor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Trust position performs unexpectedly, Investor 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 Investor will offset losses from the drop in Investor's long position.
The idea behind Northern Trust and Investor AB 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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