Correlation Between Northern Short and Northern High

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

By analyzing existing cross correlation between Northern Short Intermediate Government and Northern High Yield, you can compare the effects of market volatilities on Northern Short and Northern High 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 Short with a short position of Northern High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Short and Northern High.

Diversification Opportunities for Northern Short and Northern High

-0.31

Correlation Coefficient

Northern Short  Northern High

Very good diversification

The 3 months correlation between Northern and Northern is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Northern Short Intermediate Go and Northern High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern High Yield and Northern Short 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 Short Intermediate Government are associated (or correlated) with Northern High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern High Yield has no effect on the direction of Northern Short i.e., Northern Short and Northern High go up and down completely randomly.

Pair Corralation between Northern Short and Northern High

Assuming the 90 days horizon Northern Short Intermediate Government is expected to under-perform the Northern High. But the mutual fund apears to be less risky and, when comparing its historical volatility, Northern Short Intermediate Government is 1.55 times less risky than Northern High. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Northern High Yield is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest  583.00  in Northern High Yield on February 19, 2025 and sell it today you would earn a total of  20.00  from holding Northern High Yield or generate 3.43% return on investment over 90 days.

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

Northern Short Intermediate Go  vs.  Northern High Yield

Northern Short Inter

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Short Intermediate Government are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Northern Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northern High Yield

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern High Yield are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Northern High 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 Short and Northern High

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

The idea behind Northern Short Intermediate Government and Northern High Yield 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.