Correlation Between Vanguard and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Vanguard 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 Vanguard and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard SP Mid Cap and Northern Lights, you can compare the effects of market volatilities on Vanguard 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 Vanguard with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Northern Lights.
Diversification Opportunities for Vanguard and Northern Lights
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Vanguard and Northern is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Mid Cap and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Vanguard 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 Vanguard SP Mid Cap 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 Vanguard i.e., Vanguard and Northern Lights go up and down completely randomly.
Pair Corralation between Vanguard and Northern Lights
Given the investment horizon of 90 days Vanguard is expected to generate 1.04 times less return on investment than Northern Lights. But when comparing it to its historical volatility, Vanguard SP Mid Cap is 1.02 times less risky than Northern Lights. It trades about 0.05 of its potential returns per unit of risk. Northern Lights is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,423 in Northern Lights on November 9, 2024 and sell it today you would earn a total of 728.00 from holding Northern Lights or generate 30.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Vanguard SP Mid Cap vs. Northern Lights
Performance |
| Timeline |
| Vanguard SP Mid |
| Northern Lights |
Vanguard and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard and Northern Lights
The main advantage of trading using opposite Vanguard and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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.| Vanguard vs. Vanguard SP Small Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard SP Small Cap |
| Northern Lights vs. Inspire Tactical Balanced | Northern Lights vs. Inspire SmallMid Cap | Northern Lights vs. Inspire Faithward Mid | Northern Lights vs. Northern Lights |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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