Correlation Between Sierra Tactical and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Sierra Tactical 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 Sierra Tactical and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sierra Tactical Risk and Northern Lights, you can compare the effects of market volatilities on Sierra Tactical 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 Sierra Tactical with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Tactical and Northern Lights.
Diversification Opportunities for Sierra Tactical and Northern Lights
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sierra and Northern is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Tactical Risk and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Sierra Tactical 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 Sierra Tactical Risk 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 Sierra Tactical i.e., Sierra Tactical and Northern Lights go up and down completely randomly.
Pair Corralation between Sierra Tactical and Northern Lights
Assuming the 90 days horizon Sierra Tactical is expected to generate 2.97 times less return on investment than Northern Lights. But when comparing it to its historical volatility, Sierra Tactical Risk is 2.1 times less risky than Northern Lights. It trades about 0.08 of its potential returns per unit of risk. Northern Lights is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,459 in Northern Lights on August 26, 2024 and sell it today you would earn a total of 516.00 from holding Northern Lights or generate 20.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 58.75% |
| Values | Daily Returns |
Sierra Tactical Risk vs. Northern Lights
Performance |
| Timeline |
| Sierra Tactical Risk |
| Northern Lights |
Sierra Tactical and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sierra Tactical and Northern Lights
The main advantage of trading using opposite Sierra Tactical and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sierra Tactical 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.| Sierra Tactical vs. Fidelity Series Government | Sierra Tactical vs. Short Term Government Fund | Sierra Tactical vs. Franklin Adjustable Government | Sierra Tactical vs. Us Government Securities |
| Northern Lights vs. Sierra Tactical Risk | Northern Lights vs. Sierra Tactical Risk | Northern Lights vs. Sierra Tactical Risk | Northern Lights vs. Sierra Tactical Risk |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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