Correlation Between Northern Lights and First Trust
Can any of the company-specific risk be diversified away by investing in both Northern Lights and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and First Trust S Network, you can compare the effects of market volatilities on Northern Lights and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and First Trust.
Diversification Opportunities for Northern Lights and First Trust
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and First Trust S Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust S 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust S has no effect on the direction of Northern Lights i.e., Northern Lights and First Trust go up and down completely randomly.
Pair Corralation between Northern Lights and First Trust
Given the investment horizon of 90 days Northern Lights is expected to generate 0.55 times more return on investment than First Trust. However, Northern Lights is 1.81 times less risky than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust S Network is currently generating about 0.04 per unit of risk. If you would invest 2,443 in Northern Lights on August 23, 2024 and sell it today you would earn a total of 1,109 from holding Northern Lights or generate 45.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. First Trust S Network
Performance |
| Timeline |
| Northern Lights |
| First Trust S |
Northern Lights and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and First Trust
The main advantage of trading using opposite Northern Lights and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Northern Lights vs. Sterling Capital Focus | Northern Lights vs. Roundhill ETF Trust | Northern Lights vs. Northern Lights | Northern Lights vs. First Trust Exchange Traded |
| First Trust vs. iShares Global Industrials | First Trust vs. iShares Global Consumer | First Trust vs. iShares Global Utilities | First Trust vs. iShares Global Financials |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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