Correlation Between HCM Defender and Northern Lights
Can any of the company-specific risk be diversified away by investing in both HCM Defender 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 HCM Defender and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HCM Defender 100 and Northern Lights, you can compare the effects of market volatilities on HCM Defender 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 HCM Defender with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of HCM Defender and Northern Lights.
Diversification Opportunities for HCM Defender and Northern Lights
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between HCM and Northern is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding HCM Defender 100 and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and HCM Defender 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 HCM Defender 100 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 HCM Defender i.e., HCM Defender and Northern Lights go up and down completely randomly.
Pair Corralation between HCM Defender and Northern Lights
Considering the 90-day investment horizon HCM Defender is expected to generate 1.31 times less return on investment than Northern Lights. In addition to that, HCM Defender is 2.13 times more volatile than Northern Lights. It trades about 0.07 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.2 per unit of volatility. If you would invest 3,452 in Northern Lights on August 26, 2024 and sell it today you would earn a total of 111.00 from holding Northern Lights or generate 3.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
HCM Defender 100 vs. Northern Lights
Performance |
| Timeline |
| HCM Defender 100 |
| Northern Lights |
HCM Defender and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HCM Defender and Northern Lights
The main advantage of trading using opposite HCM Defender and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HCM Defender 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.| HCM Defender vs. Invesco Dynamic Large | HCM Defender vs. Perella Weinberg Partners | HCM Defender vs. HUMANA INC | HCM Defender vs. Aquagold International |
| Northern Lights vs. Invesco Dynamic Large | Northern Lights vs. Perella Weinberg Partners | Northern Lights vs. HUMANA INC | Northern Lights vs. Aquagold 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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