Correlation Between Northern Lights and SPDR SSgA
Can any of the company-specific risk be diversified away by investing in both Northern Lights and SPDR SSgA 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 SSgA 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 SSgA Income, you can compare the effects of market volatilities on Northern Lights and SPDR SSgA 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 SSgA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and SPDR SSgA.
Diversification Opportunities for Northern Lights and SPDR SSgA
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and SPDR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and SPDR SSgA Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSgA Income 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 SSgA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSgA Income has no effect on the direction of Northern Lights i.e., Northern Lights and SPDR SSgA go up and down completely randomly.
Pair Corralation between Northern Lights and SPDR SSgA
Given the investment horizon of 90 days Northern Lights is expected to generate 4.89 times less return on investment than SPDR SSgA. In addition to that, Northern Lights is 1.42 times more volatile than SPDR SSgA Income. It trades about 0.02 of its total potential returns per unit of risk. SPDR SSgA Income is currently generating about 0.17 per unit of volatility. If you would invest 3,231 in SPDR SSgA Income on August 28, 2024 and sell it today you would earn a total of 41.00 from holding SPDR SSgA Income or generate 1.27% 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 SSgA Income
Performance |
| Timeline |
| Northern Lights |
| SPDR SSgA Income |
Northern Lights and SPDR SSgA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and SPDR SSgA
The main advantage of trading using opposite Northern Lights and SPDR SSgA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, SPDR SSgA 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 SSgA will offset losses from the drop in SPDR SSgA's long position.The idea behind Northern Lights and SPDR SSgA Income pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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