Correlation Between IShares MSCI and Northern Lights
Can any of the company-specific risk be diversified away by investing in both IShares MSCI 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 IShares MSCI and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI USA and Northern Lights, you can compare the effects of market volatilities on IShares MSCI 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 IShares MSCI with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Northern Lights.
Diversification Opportunities for IShares MSCI and Northern Lights
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and Northern is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and IShares MSCI 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 iShares MSCI USA 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 IShares MSCI i.e., IShares MSCI and Northern Lights go up and down completely randomly.
Pair Corralation between IShares MSCI and Northern Lights
Given the investment horizon of 90 days iShares MSCI USA is expected to generate 1.31 times more return on investment than Northern Lights. However, IShares MSCI is 1.31 times more volatile than Northern Lights. It trades about 0.05 of its potential returns per unit of risk. Northern Lights is currently generating about 0.02 per unit of risk. If you would invest 11,082 in iShares MSCI USA on November 27, 2024 and sell it today you would earn a total of 82.00 from holding iShares MSCI USA or generate 0.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI USA vs. Northern Lights
Performance |
| Timeline |
| iShares MSCI USA |
| Northern Lights |
IShares MSCI and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Northern Lights
The main advantage of trading using opposite IShares MSCI and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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.| IShares MSCI vs. iShares MSCI USA | IShares MSCI vs. iShares MSCI USA | IShares MSCI vs. iShares MSCI USA | IShares MSCI vs. iShares MSCI USA |
| Northern Lights vs. Sterling Capital Focus | Northern Lights vs. Northern Lights | Northern Lights vs. First Trust Exchange Traded | Northern Lights vs. Northern Lights |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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