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
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between ETF and Northern is 0.93. 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 Solutions is expected to generate 1.0 times more return on investment than Northern Lights. However, ETF Series is 1.0 times more volatile than Northern Lights. It trades about 0.08 of its potential returns per unit of risk. Northern Lights is currently generating about 0.08 per unit of risk. If you would invest 2,578 in ETF Series Solutions on August 26, 2024 and sell it today you would earn a total of 886.00 from holding ETF Series Solutions or generate 34.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| 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. WisdomTree 9060 Balanced | ETF Series vs. RPAR Risk Parity | ETF Series vs. Cambria Tail Risk | ETF Series vs. Aptus Defined Risk |
| Northern Lights vs. Northern Lights | Northern Lights vs. LHA Market State | Northern Lights vs. Innovator Nasdaq 100 Power | Northern Lights vs. ETF Series Solutions |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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