Correlation Between Saratoga Investment and Northern Trust
Can any of the company-specific risk be diversified away by investing in both Saratoga Investment 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 Saratoga Investment and Northern Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Saratoga Investment Corp and Northern Trust, you can compare the effects of market volatilities on Saratoga Investment 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 Saratoga Investment with a short position of Northern Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Saratoga Investment and Northern Trust.
Diversification Opportunities for Saratoga Investment and Northern Trust
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Saratoga and Northern is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Saratoga Investment Corp and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust and Saratoga Investment 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 Saratoga Investment Corp 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 Saratoga Investment i.e., Saratoga Investment and Northern Trust go up and down completely randomly.
Pair Corralation between Saratoga Investment and Northern Trust
Considering the 90-day investment horizon Saratoga Investment Corp is expected to generate 0.41 times more return on investment than Northern Trust. However, Saratoga Investment Corp is 2.42 times less risky than Northern Trust. It trades about 0.03 of its potential returns per unit of risk. Northern Trust is currently generating about -0.07 per unit of risk. If you would invest 2,263 in Saratoga Investment Corp on January 17, 2024 and sell it today you would earn a total of 9.00 from holding Saratoga Investment Corp or generate 0.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Saratoga Investment Corp vs. Northern Trust
Performance |
| Timeline |
| Saratoga Investment Corp |
| Northern Trust |
Saratoga Investment and Northern Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Saratoga Investment and Northern Trust
The main advantage of trading using opposite Saratoga Investment and Northern Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Saratoga Investment 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 Saratoga Investment Corp 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.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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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