Correlation Between Northern Lights and ETF Series
Can any of the company-specific risk be diversified away by investing in both Northern Lights and ETF Series 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 ETF Series into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and ETF Series Solutions, you can compare the effects of market volatilities on Northern Lights and ETF Series 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 ETF Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and ETF Series.
Diversification Opportunities for Northern Lights and ETF Series
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northern and ETF is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions 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 ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Northern Lights i.e., Northern Lights and ETF Series go up and down completely randomly.
Pair Corralation between Northern Lights and ETF Series
Given the investment horizon of 90 days Northern Lights is expected to generate 0.99 times more return on investment than ETF Series. However, Northern Lights is 1.01 times less risky than ETF Series. It trades about 0.2 of its potential returns per unit of risk. ETF Series Solutions is currently generating about 0.09 per unit of risk. If you would invest 3,461 in Northern Lights on August 30, 2024 and sell it today you would earn a total of 113.00 from holding Northern Lights or generate 3.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. ETF Series Solutions
Performance |
| Timeline |
| Northern Lights |
| ETF Series Solutions |
Northern Lights and ETF Series Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and ETF Series
The main advantage of trading using opposite Northern Lights and ETF Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, ETF Series 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 ETF Series will offset losses from the drop in ETF Series' 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 |
| ETF Series vs. Alpha Architect Quantitative | ETF Series vs. Alpha Architect International | ETF Series vs. Alpha Architect International | ETF Series vs. Alpha Architect Quantitative |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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