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 SMID, 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
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and First Trust SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SMID 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 SMID 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 1.92 times less return on investment than First Trust. But when comparing it to its historical volatility, Northern Lights is 1.67 times less risky than First Trust. It trades about 0.24 of its potential returns per unit of risk. First Trust SMID is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 3,538 in First Trust SMID on August 31, 2024 and sell it today you would earn a total of 286.00 from holding First Trust SMID or generate 8.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. First Trust SMID
Performance |
| Timeline |
| Northern Lights |
| First Trust SMID |
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. FT Vest Equity | First Trust vs. Northern Lights | First Trust vs. Dimensional International High | First Trust vs. Matthews China Discovery |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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