Correlation Between Palantir TechnologiesInc and Northern Small

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

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

Diversification Opportunities for Palantir TechnologiesInc and Northern Small

0.66

Correlation Coefficient

Palantir TechnologiesInc  Northern Small

Poor diversification

The 3 months correlation between Palantir and Northern is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Palantir TechnologiesInc and Northern Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Small Cap and Palantir TechnologiesInc 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 Palantir TechnologiesInc are associated (or correlated) with Northern Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Small Cap has no effect on the direction of Palantir TechnologiesInc i.e., Palantir TechnologiesInc and Northern Small go up and down completely randomly.

Pair Corralation between Palantir TechnologiesInc and Northern Small

Given the investment horizon of 90 days Palantir TechnologiesInc is expected to under-perform the Northern Small. In addition to that, Palantir TechnologiesInc is 1.69 times more volatile than Northern Small Cap. It trades about -0.31 of its total potential returns per unit of risk. Northern Small Cap is currently generating about -0.13 per unit of volatility. If you would invest  1,366  in Northern Small Cap on January 26, 2024 and sell it today you would lose (49.00) from holding Northern Small Cap or give up 3.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Palantir TechnologiesInc  vs.  Northern Small Cap

Palantir TechnologiesInc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Palantir TechnologiesInc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Palantir TechnologiesInc reported solid returns over the last few months and may actually be approaching a breakup point.

Northern Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong 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.

Pair Trading with Palantir TechnologiesInc and Northern Small

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

The idea behind Palantir TechnologiesInc and Northern Small Cap 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.