Correlation Between Northern Lights and IShares Transportation
Can any of the company-specific risk be diversified away by investing in both Northern Lights and IShares Transportation 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 IShares Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and iShares Transportation Average, you can compare the effects of market volatilities on Northern Lights and IShares Transportation 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 IShares Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and IShares Transportation.
Diversification Opportunities for Northern Lights and IShares Transportation
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and iShares Transportation Average in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Transportation 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 IShares Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Transportation has no effect on the direction of Northern Lights i.e., Northern Lights and IShares Transportation go up and down completely randomly.
Pair Corralation between Northern Lights and IShares Transportation
Given the investment horizon of 90 days Northern Lights is expected to generate 1.68 times less return on investment than IShares Transportation. But when comparing it to its historical volatility, Northern Lights is 2.03 times less risky than IShares Transportation. It trades about 0.23 of its potential returns per unit of risk. iShares Transportation Average is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 7,019 in iShares Transportation Average on August 29, 2024 and sell it today you would earn a total of 445.00 from holding iShares Transportation Average or generate 6.34% 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. iShares Transportation Average
Performance |
| Timeline |
| Northern Lights |
| iShares Transportation |
Northern Lights and IShares Transportation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and IShares Transportation
The main advantage of trading using opposite Northern Lights and IShares Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, IShares Transportation 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 IShares Transportation will offset losses from the drop in IShares Transportation's long position.| Northern Lights vs. Invesco Dynamic Large | Northern Lights vs. Perella Weinberg Partners | Northern Lights vs. HUMANA INC | Northern Lights vs. Aquagold International |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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