Correlation Between Northern Lights and IShares IBoxx
Can any of the company-specific risk be diversified away by investing in both Northern Lights and IShares IBoxx 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 IShares IBoxx into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and iShares iBoxx High, you can compare the effects of market volatilities on Northern Lights and IShares IBoxx 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 IShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and IShares IBoxx.
Diversification Opportunities for Northern Lights and IShares IBoxx
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Northern and IShares is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and iShares iBoxx High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx High 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 IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx High has no effect on the direction of Northern Lights i.e., Northern Lights and IShares IBoxx go up and down completely randomly.
Pair Corralation between Northern Lights and IShares IBoxx
Considering the 90-day investment horizon Northern Lights is expected to generate 1.54 times more return on investment than IShares IBoxx. However, Northern Lights is 1.54 times more volatile than iShares iBoxx High. It trades about 0.26 of its potential returns per unit of risk. iShares iBoxx High is currently generating about 0.16 per unit of risk. If you would invest 2,350 in Northern Lights on September 12, 2024 and sell it today you would earn a total of 37.00 from holding Northern Lights or generate 1.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. iShares iBoxx High
Performance |
| Timeline |
| Northern Lights |
| iShares iBoxx High |
Northern Lights and IShares IBoxx Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and IShares IBoxx
The main advantage of trading using opposite Northern Lights and IShares IBoxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, IShares IBoxx 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 IShares IBoxx will offset losses from the drop in IShares IBoxx's long position.| Northern Lights vs. American Century STOXX | Northern Lights vs. Franklin Liberty Investment | Northern Lights vs. Aquagold International | Northern Lights vs. Morningstar Unconstrained Allocation |
| IShares IBoxx vs. iShares iBoxx Investment | IShares IBoxx vs. SPDR Bloomberg High | IShares IBoxx vs. iShares TIPS Bond | IShares IBoxx vs. iShares 20 Year |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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