Correlation Between Northern and Blackrock

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

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

Diversification Opportunities for Northern and Blackrock

0.98

Correlation Coefficient

Northern  Blackrock

Almost no diversification

The 3 months correlation between Northern and Blackrock is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Northern Government Fund and Blackrock Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackrock Government Bond and Northern 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 Government Fund are associated (or correlated) with Blackrock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackrock Government Bond has no effect on the direction of Northern i.e., Northern and Blackrock go up and down completely randomly.

Pair Corralation between Northern and Blackrock

Assuming the 90 days horizon Northern Government Fund is expected to generate 0.7 times more return on investment than Blackrock. However, Northern Government Fund is 1.43 times less risky than Blackrock. It trades about -0.25 of its potential returns per unit of risk. Blackrock Government Bond is currently generating about -0.22 per unit of risk. If you would invest  872.00  in Northern Government Fund on January 25, 2024 and sell it today you would lose (16.00) from holding Northern Government Fund or give up 1.83% of portfolio value over 90 days.

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

Northern Government Fund  vs.  Blackrock Government Bond

Northern Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Blackrock Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Blackrock Government Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Blackrock 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 and Blackrock

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

The idea behind Northern Government Fund and Blackrock Government Bond 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.