Correlation Between All Asset and Northern Lights
Can any of the company-specific risk be diversified away by investing in both All Asset 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 All Asset and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between All Asset Fund and Northern Lights, you can compare the effects of market volatilities on All Asset 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 All Asset with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of All Asset and Northern Lights.
Diversification Opportunities for All Asset and Northern Lights
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between All and Northern is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding All Asset Fund and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and All Asset 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 All Asset Fund 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 All Asset i.e., All Asset and Northern Lights go up and down completely randomly.
Pair Corralation between All Asset and Northern Lights
Assuming the 90 days horizon All Asset is expected to generate 2.16 times less return on investment than Northern Lights. But when comparing it to its historical volatility, All Asset Fund is 1.41 times less risky than Northern Lights. It trades about 0.25 of its potential returns per unit of risk. Northern Lights is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 2,851 in Northern Lights on September 1, 2024 and sell it today you would earn a total of 153.00 from holding Northern Lights or generate 5.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
All Asset Fund vs. Northern Lights
Performance |
| Timeline |
| All Asset Fund |
| Northern Lights |
All Asset and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with All Asset and Northern Lights
The main advantage of trading using opposite All Asset and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if All Asset 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.| All Asset vs. Ab Bond Inflation | All Asset vs. Oklahoma Municipal Fund | All Asset vs. Multisector Bond Sma | All Asset vs. Ab Impact Municipal |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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