Correlation Between Northern Lights and ETRACS 2x
Can any of the company-specific risk be diversified away by investing in both Northern Lights and ETRACS 2x 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 ETRACS 2x into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and ETRACS 2x Leveraged, you can compare the effects of market volatilities on Northern Lights and ETRACS 2x 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 ETRACS 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and ETRACS 2x.
Diversification Opportunities for Northern Lights and ETRACS 2x
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northern and ETRACS is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and ETRACS 2x Leveraged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS 2x Leveraged 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 ETRACS 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS 2x Leveraged has no effect on the direction of Northern Lights i.e., Northern Lights and ETRACS 2x go up and down completely randomly.
Pair Corralation between Northern Lights and ETRACS 2x
Given the investment horizon of 90 days Northern Lights is expected to generate 1.35 times less return on investment than ETRACS 2x. But when comparing it to its historical volatility, Northern Lights is 1.63 times less risky than ETRACS 2x. It trades about 0.08 of its potential returns per unit of risk. ETRACS 2x Leveraged is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 5,172 in ETRACS 2x Leveraged on September 12, 2024 and sell it today you would earn a total of 77.00 from holding ETRACS 2x Leveraged or generate 1.49% 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. ETRACS 2x Leveraged
Performance |
| Timeline |
| Northern Lights |
| ETRACS 2x Leveraged |
Northern Lights and ETRACS 2x Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and ETRACS 2x
The main advantage of trading using opposite Northern Lights and ETRACS 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, ETRACS 2x 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 ETRACS 2x will offset losses from the drop in ETRACS 2x's long position.| Northern Lights vs. iShares Factors Growth | Northern Lights vs. Absolute Core Strategy | Northern Lights vs. iShares ESG Advanced | Northern Lights vs. PIMCO RAFI Dynamic |
| ETRACS 2x vs. FT Vest Equity | ETRACS 2x vs. Northern Lights | ETRACS 2x vs. Dimensional International High | ETRACS 2x vs. JPMorgan Fundamental Data |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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