Correlation Between IShares Trust and Northern Lights
Can any of the company-specific risk be diversified away by investing in both IShares Trust 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 IShares Trust and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Trust and Northern Lights, you can compare the effects of market volatilities on IShares Trust 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 IShares Trust with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and Northern Lights.
Diversification Opportunities for IShares Trust and Northern Lights
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and Northern is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and IShares Trust 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 iShares Trust 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 IShares Trust i.e., IShares Trust and Northern Lights go up and down completely randomly.
Pair Corralation between IShares Trust and Northern Lights
Given the investment horizon of 90 days IShares Trust is expected to generate 1.06 times less return on investment than Northern Lights. But when comparing it to its historical volatility, iShares Trust is 1.7 times less risky than Northern Lights. It trades about 0.17 of its potential returns per unit of risk. Northern Lights is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,740 in Northern Lights on September 14, 2024 and sell it today you would earn a total of 36.00 from holding Northern Lights or generate 1.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Trust vs. Northern Lights
Performance |
| Timeline |
| iShares Trust |
| Northern Lights |
IShares Trust and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Trust and Northern Lights
The main advantage of trading using opposite IShares Trust and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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.| IShares Trust vs. First Trust Multi Asset | IShares Trust vs. Collaborative Investment Series | IShares Trust vs. EA Series Trust | IShares Trust vs. Aptus Defined Risk |
| Northern Lights vs. First Trust Multi Asset | Northern Lights vs. Collaborative Investment Series | Northern Lights vs. EA Series Trust | Northern Lights vs. Aptus Defined Risk |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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