Correlation Between Northern Lights and Essential
Can any of the company-specific risk be diversified away by investing in both Northern Lights and Essential 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 Essential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and Essential 40 Stock, you can compare the effects of market volatilities on Northern Lights and Essential 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 Essential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Essential.
Diversification Opportunities for Northern Lights and Essential
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between Northern and Essential is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Essential 40 Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential 40 Stock 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 Essential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential 40 Stock has no effect on the direction of Northern Lights i.e., Northern Lights and Essential go up and down completely randomly.
Pair Corralation between Northern Lights and Essential
Given the investment horizon of 90 days Northern Lights is expected to generate 1.08 times less return on investment than Essential. In addition to that, Northern Lights is 1.11 times more volatile than Essential 40 Stock. It trades about 0.2 of its total potential returns per unit of risk. Essential 40 Stock is currently generating about 0.24 per unit of volatility. If you would invest 1,518 in Essential 40 Stock on August 30, 2024 and sell it today you would earn a total of 54.00 from holding Essential 40 Stock or generate 3.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. Essential 40 Stock
Performance |
| Timeline |
| Northern Lights |
| Essential 40 Stock |
Northern Lights and Essential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and Essential
The main advantage of trading using opposite Northern Lights and Essential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, Essential 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 Essential will offset losses from the drop in Essential's long position.| Northern Lights vs. iShares MSCI USA | Northern Lights vs. iShares MSCI USA | Northern Lights vs. iShares MSCI USA | Northern Lights vs. iShares Expanded Tech Software |
| Essential vs. Vanguard Total Stock | Essential vs. SPDR SP 500 | Essential vs. iShares Core SP | Essential vs. Vanguard Total Bond |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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