Correlation Between Arrow DWA and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Arrow DWA and Northern Lights 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 Arrow DWA and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arrow DWA Tactical and Northern Lights, you can compare the effects of market volatilities on Arrow DWA and Northern Lights 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 Arrow DWA with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arrow DWA and Northern Lights.
Diversification Opportunities for Arrow DWA and Northern Lights
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Arrow and Northern is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Arrow DWA Tactical and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Arrow DWA 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 Arrow DWA Tactical are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Arrow DWA i.e., Arrow DWA and Northern Lights go up and down completely randomly.
Pair Corralation between Arrow DWA and Northern Lights
Given the investment horizon of 90 days Arrow DWA Tactical is expected to generate 1.14 times more return on investment than Northern Lights. However, Arrow DWA is 1.14 times more volatile than Northern Lights. It trades about 0.23 of its potential returns per unit of risk. Northern Lights is currently generating about 0.22 per unit of risk. If you would invest 1,150 in Arrow DWA Tactical on November 3, 2024 and sell it today you would earn a total of 48.40 from holding Arrow DWA Tactical or generate 4.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Arrow DWA Tactical vs. Northern Lights
Performance |
| Timeline |
| Arrow DWA Tactical |
| Northern Lights |
Arrow DWA and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arrow DWA and Northern Lights
The main advantage of trading using opposite Arrow DWA and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow DWA position performs unexpectedly, Northern Lights 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 Lights will offset losses from the drop in Northern Lights' long position.| Arrow DWA vs. Arrow DWA Tactical | Arrow DWA vs. FlexShares Real Assets | Arrow DWA vs. First Trust Income | Arrow DWA vs. VictoryShares Discovery Enhanced |
| Northern Lights vs. First Trust Multi Asset | Northern Lights vs. Collaborative Investment Series | Northern Lights vs. Northern Lights | Northern Lights vs. Ocean Park International |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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