Correlation Between ETF Series and Northern Lights
Can any of the company-specific risk be diversified away by investing in both ETF Series and Northern Lights 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 ETF Series and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ETF Series Solutions and Northern Lights, you can compare the effects of market volatilities on ETF Series and Northern Lights 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 ETF Series with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETF Series and Northern Lights.
Diversification Opportunities for ETF Series and Northern Lights
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ETF and Northern is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding ETF Series Solutions and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and ETF Series 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 ETF Series Solutions are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of ETF Series i.e., ETF Series and Northern Lights go up and down completely randomly.
Pair Corralation between ETF Series and Northern Lights
Given the investment horizon of 90 days ETF Series is expected to generate 1.95 times less return on investment than Northern Lights. But when comparing it to its historical volatility, ETF Series Solutions is 1.39 times less risky than Northern Lights. It trades about 0.16 of its potential returns per unit of risk. Northern Lights is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 2,596 in Northern Lights on November 3, 2024 and sell it today you would earn a total of 90.70 from holding Northern Lights or generate 3.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ETF Series Solutions vs. Northern Lights
Performance |
| Timeline |
| ETF Series Solutions |
| Northern Lights |
ETF Series and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ETF Series and Northern Lights
The main advantage of trading using opposite ETF Series and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETF Series position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| ETF Series vs. ETF Series Solutions | ETF Series vs. Global X Adaptive | ETF Series vs. Amplify BlackSwan ISWN |
| Northern Lights vs. First Trust Multi Asset | Northern Lights vs. Collaborative Investment Series | Northern Lights vs. Northern Lights | Northern Lights vs. Ocean Park International |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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