Correlation Between Northern Lights and 3EDGE Dynamic
Can any of the company-specific risk be diversified away by investing in both Northern Lights and 3EDGE Dynamic 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 Lights and 3EDGE Dynamic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and 3EDGE Dynamic Fixed, you can compare the effects of market volatilities on Northern Lights and 3EDGE Dynamic 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 Lights with a short position of 3EDGE Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and 3EDGE Dynamic.
Diversification Opportunities for Northern Lights and 3EDGE Dynamic
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and 3EDGE is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and 3EDGE Dynamic Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3EDGE Dynamic Fixed and Northern Lights 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 Lights are associated (or correlated) with 3EDGE Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3EDGE Dynamic Fixed has no effect on the direction of Northern Lights i.e., Northern Lights and 3EDGE Dynamic go up and down completely randomly.
Pair Corralation between Northern Lights and 3EDGE Dynamic
Given the investment horizon of 90 days Northern Lights is expected to under-perform the 3EDGE Dynamic. In addition to that, Northern Lights is 2.43 times more volatile than 3EDGE Dynamic Fixed. It trades about -0.07 of its total potential returns per unit of risk. 3EDGE Dynamic Fixed is currently generating about 0.16 per unit of volatility. If you would invest 2,446 in 3EDGE Dynamic Fixed on October 26, 2024 and sell it today you would earn a total of 7.00 from holding 3EDGE Dynamic Fixed or generate 0.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. 3EDGE Dynamic Fixed
Performance |
| Timeline |
| Northern Lights |
| 3EDGE Dynamic Fixed |
Northern Lights and 3EDGE Dynamic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and 3EDGE Dynamic
The main advantage of trading using opposite Northern Lights and 3EDGE Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, 3EDGE Dynamic 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 3EDGE Dynamic will offset losses from the drop in 3EDGE Dynamic's long position.| Northern Lights vs. MFS Active Exchange | Northern Lights vs. First Trust Exchange Traded | Northern Lights vs. Vanguard Intermediate Term Treasury | Northern Lights vs. Vanguard Long Term Treasury |
| 3EDGE Dynamic vs. MFS Active Exchange | 3EDGE Dynamic vs. First Trust Exchange Traded | 3EDGE Dynamic vs. Vanguard Intermediate Term Treasury | 3EDGE Dynamic vs. Vanguard Long Term Treasury |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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