Correlation Between Cabana Target and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Cabana Target 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 Cabana Target and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cabana Target Drawdown and Northern Lights, you can compare the effects of market volatilities on Cabana Target 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 Cabana Target with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cabana Target and Northern Lights.
Diversification Opportunities for Cabana Target and Northern Lights
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Cabana and Northern is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Cabana Target Drawdown and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Cabana Target 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 Cabana Target Drawdown 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 Cabana Target i.e., Cabana Target and Northern Lights go up and down completely randomly.
Pair Corralation between Cabana Target and Northern Lights
Given the investment horizon of 90 days Cabana Target is expected to generate 1.8 times less return on investment than Northern Lights. But when comparing it to its historical volatility, Cabana Target Drawdown is 2.09 times less risky than Northern Lights. It trades about 0.29 of its potential returns per unit of risk. Northern Lights is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 2,643 in Northern Lights on October 24, 2024 and sell it today you would earn a total of 88.00 from holding Northern Lights or generate 3.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cabana Target Drawdown vs. Northern Lights
Performance |
| Timeline |
| Cabana Target Drawdown |
| Northern Lights |
Cabana Target and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cabana Target and Northern Lights
The main advantage of trading using opposite Cabana Target and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cabana Target 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.The idea behind Cabana Target Drawdown and Northern Lights pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Northern Lights vs. Karat Packaging | Northern Lights vs. Tidal ETF Trust | Northern Lights vs. First Trust Enhanced | Northern Lights vs. Western Asset Premier |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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