Correlation Between IDX Dynamic and Northern Lights
Can any of the company-specific risk be diversified away by investing in both IDX Dynamic 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 IDX Dynamic and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IDX Dynamic Fixed and Northern Lights, you can compare the effects of market volatilities on IDX Dynamic 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 IDX Dynamic with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDX Dynamic and Northern Lights.
Diversification Opportunities for IDX Dynamic and Northern Lights
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IDX and Northern is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding IDX Dynamic Fixed and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and IDX Dynamic 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 IDX Dynamic Fixed 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 IDX Dynamic i.e., IDX Dynamic and Northern Lights go up and down completely randomly.
Pair Corralation between IDX Dynamic and Northern Lights
Given the investment horizon of 90 days IDX Dynamic Fixed is expected to generate 0.4 times more return on investment than Northern Lights. However, IDX Dynamic Fixed is 2.52 times less risky than Northern Lights. It trades about 0.12 of its potential returns per unit of risk. Northern Lights is currently generating about -0.07 per unit of risk. If you would invest 2,332 in IDX Dynamic Fixed on October 26, 2024 and sell it today you would earn a total of 5.00 from holding IDX Dynamic Fixed or generate 0.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
IDX Dynamic Fixed vs. Northern Lights
Performance |
| Timeline |
| IDX Dynamic Fixed |
| Northern Lights |
IDX Dynamic and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IDX Dynamic and Northern Lights
The main advantage of trading using opposite IDX Dynamic and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDX Dynamic 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.| IDX Dynamic vs. MFS Active Exchange | IDX Dynamic vs. First Trust Exchange Traded | IDX Dynamic vs. Vanguard Intermediate Term Treasury | IDX Dynamic vs. Vanguard Long Term Treasury |
| 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 |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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