Correlation Between Northern Lights and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Northern Lights and SPDR SP 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 SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and SPDR SP 600, you can compare the effects of market volatilities on Northern Lights and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and SPDR SP.
Diversification Opportunities for Northern Lights and SPDR SP
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and SPDR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and SPDR SP 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 600 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 600 has no effect on the direction of Northern Lights i.e., Northern Lights and SPDR SP go up and down completely randomly.
Pair Corralation between Northern Lights and SPDR SP
Given the investment horizon of 90 days Northern Lights is expected to generate 1.76 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Northern Lights is 1.75 times less risky than SPDR SP. It trades about 0.11 of its potential returns per unit of risk. SPDR SP 600 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,815 in SPDR SP 600 on September 5, 2024 and sell it today you would earn a total of 1,576 from holding SPDR SP 600 or generate 20.17% 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. SPDR SP 600
Performance |
| Timeline |
| Northern Lights |
| SPDR SP 600 |
Northern Lights and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and SPDR SP
The main advantage of trading using opposite Northern Lights and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP'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 |
| SPDR SP vs. FT Vest Equity | SPDR SP vs. Northern Lights | SPDR SP vs. Dimensional International High | SPDR SP 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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