Correlation Between Northern Government and Thrivent Government

Can any of the company-specific risk be diversified away by investing in both Northern Government and Thrivent Government 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 Government and Thrivent Government 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 Thrivent Government Bond, you can compare the effects of market volatilities on Northern Government and Thrivent Government 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 Government with a short position of Thrivent Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Government and Thrivent Government.

Diversification Opportunities for Northern Government and Thrivent Government

0.82

Correlation Coefficient

Northern Government  Thrivent Government

Very poor diversification

The 3 months correlation between Northern and Thrivent is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Northern Government Fund and Thrivent Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thrivent Government Bond and Northern Government 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 Thrivent Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thrivent Government Bond has no effect on the direction of Northern Government i.e., Northern Government and Thrivent Government go up and down completely randomly.

Pair Corralation between Northern Government and Thrivent Government

Assuming the 90 days horizon Northern Government Fund is expected to generate 0.88 times more return on investment than Thrivent Government. However, Northern Government Fund is 1.13 times less risky than Thrivent Government. It trades about -0.23 of its potential returns per unit of risk. Thrivent Government Bond is currently generating about -0.23 per unit of risk. If you would invest  869.00  in Northern Government Fund on January 20, 2024 and sell it today you would lose (15.00) from holding Northern Government Fund or give up 1.73% of portfolio value over 90 days.

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

Northern Government Fund  vs.  Thrivent 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 Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Thrivent Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Northern Government Fund and Thrivent 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.