Correlation Between Northern Small and Dunham Focused

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

By analyzing existing cross correlation between Northern Small Cap and Dunham Focused Large, you can compare the effects of market volatilities on Northern Small and Dunham Focused 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 Small with a short position of Dunham Focused. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Dunham Focused.

Diversification Opportunities for Northern Small and Dunham Focused

0.07

Correlation Coefficient

Northern Small  Dunham Focused

Significant diversification

The 3 months correlation between Northern and Dunham is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Dunham Focused Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dunham Focused Large and Northern Small 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 Small Cap are associated (or correlated) with Dunham Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dunham Focused Large has no effect on the direction of Northern Small i.e., Northern Small and Dunham Focused go up and down completely randomly.

Pair Corralation between Northern Small and Dunham Focused

Assuming the 90 days horizon Northern Small Cap is expected to generate 0.92 times more return on investment than Dunham Focused. However, Northern Small Cap is 1.09 times less risky than Dunham Focused. It trades about 0.06 of its potential returns per unit of risk. Dunham Focused Large is currently generating about -0.03 per unit of risk. If you would invest  1,389  in Northern Small Cap on September 9, 2025 and sell it today you would earn a total of  51.00  from holding Northern Small Cap or generate 3.67% return on investment over 90 days.

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

Northern Small Cap  vs.  Dunham Focused Large

Northern Small Cap

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Small Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Northern Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dunham Focused Large

Risk-Adjusted Performance

Weakest

Over the last 90 days Dunham Focused Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Dunham Focused is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Small and Dunham Focused

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

The idea behind Northern Small Cap and Dunham Focused Large 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.