Correlation Between Northern Lights and X Square
Can any of the company-specific risk be diversified away by investing in both Northern Lights and X Square 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 X Square into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and X Square Balanced, you can compare the effects of market volatilities on Northern Lights and X Square 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 X Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and X Square.
Diversification Opportunities for Northern Lights and X Square
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northern and SQBIX is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and X Square Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X Square Balanced 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 X Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X Square Balanced has no effect on the direction of Northern Lights i.e., Northern Lights and X Square go up and down completely randomly.
Pair Corralation between Northern Lights and X Square
Given the investment horizon of 90 days Northern Lights is expected to generate 1.3 times less return on investment than X Square. In addition to that, Northern Lights is 1.27 times more volatile than X Square Balanced. It trades about 0.22 of its total potential returns per unit of risk. X Square Balanced is currently generating about 0.36 per unit of volatility. If you would invest 1,375 in X Square Balanced on August 30, 2024 and sell it today you would earn a total of 68.00 from holding X Square Balanced or generate 4.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Northern Lights vs. X Square Balanced
Performance |
| Timeline |
| Northern Lights |
| X Square Balanced |
Northern Lights and X Square Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and X Square
The main advantage of trading using opposite Northern Lights and X Square positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, X Square 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 X Square will offset losses from the drop in X Square's 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 |
| X Square vs. X Square Balanced | X Square vs. X Square Balanced | X Square vs. FT Vest Equity | X Square vs. Zillow Group Class |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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