Correlation Between Principal Value and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Principal Value 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 Principal Value and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Principal Value ETF and Northern Lights, you can compare the effects of market volatilities on Principal Value 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 Principal Value with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Value and Northern Lights.
Diversification Opportunities for Principal Value and Northern Lights
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Principal and Northern is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Principal Value ETF and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Principal Value 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 Principal Value ETF 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 Principal Value i.e., Principal Value and Northern Lights go up and down completely randomly.
Pair Corralation between Principal Value and Northern Lights
Allowing for the 90-day total investment horizon Principal Value ETF is expected to generate 0.87 times more return on investment than Northern Lights. However, Principal Value ETF is 1.15 times less risky than Northern Lights. It trades about 0.07 of its potential returns per unit of risk. Northern Lights is currently generating about 0.04 per unit of risk. If you would invest 3,877 in Principal Value ETF on November 27, 2024 and sell it today you would earn a total of 1,197 from holding Principal Value ETF or generate 30.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 59.84% |
| Values | Daily Returns |
Principal Value ETF vs. Northern Lights
Performance |
| Timeline |
| Principal Value ETF |
| Northern Lights |
Principal Value and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Value and Northern Lights
The main advantage of trading using opposite Principal Value and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Value 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.| Principal Value vs. Principal Quality ETF | Principal Value vs. First Trust Developed | Principal Value vs. First Trust Equity |
| Northern Lights vs. Davis Select International | Northern Lights vs. Principal Value ETF | Northern Lights vs. WisdomTree Emerging Markets | Northern Lights vs. Ballast SmallMid Cap |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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