Correlation Between Sierra Strategic and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Sierra Strategic 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 Strategic 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 Strategic Income and Northern Lights, you can compare the effects of market volatilities on Sierra Strategic 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 Strategic with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Strategic and Northern Lights.
Diversification Opportunities for Sierra Strategic and Northern Lights
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Sierra and Northern is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Strategic Income and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Sierra Strategic 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 Strategic Income 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 Strategic i.e., Sierra Strategic and Northern Lights go up and down completely randomly.
Pair Corralation between Sierra Strategic and Northern Lights
Assuming the 90 days horizon Sierra Strategic is expected to generate 5.09 times less return on investment than Northern Lights. But when comparing it to its historical volatility, Sierra Strategic Income is 2.74 times less risky than Northern Lights. It trades about 0.06 of its potential returns per unit of risk. Northern Lights is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,462 in Northern Lights on August 26, 2024 and sell it today you would earn a total of 503.00 from holding Northern Lights or generate 20.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 58.75% |
| Values | Daily Returns |
Sierra Strategic Income vs. Northern Lights
Performance |
| Timeline |
| Sierra Strategic Income |
| Northern Lights |
Sierra Strategic and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sierra Strategic and Northern Lights
The main advantage of trading using opposite Sierra Strategic and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sierra Strategic 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 Strategic vs. Sierra Tactical Risk | Sierra Strategic vs. Sierra Tactical Risk | Sierra Strategic vs. Sierra Tactical Risk | Sierra Strategic vs. Sierra Tactical Bond |
| 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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