Correlation Between Northern Lights and Karat Packaging

Can any of the company-specific risk be diversified away by investing in both Northern Lights and Karat Packaging 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 Northern Lights and Karat Packaging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Lights and Karat Packaging, you can compare the effects of market volatilities on Northern Lights and Karat Packaging 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 Northern Lights with a short position of Karat Packaging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Karat Packaging.

Diversification Opportunities for Northern Lights and Karat Packaging

0.63

Correlation Coefficient

Northern Lights  Karat Packaging

Poor diversification

The 3 months correlation between Northern and Karat is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Karat Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karat Packaging and Northern Lights 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 Northern Lights are associated (or correlated) with Karat Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karat Packaging has no effect on the direction of Northern Lights i.e., Northern Lights and Karat Packaging go up and down completely randomly.

Pair Corralation between Northern Lights and Karat Packaging

Considering the 90-day investment horizon Northern Lights is expected to generate 0.41 times more return on investment than Karat Packaging. However, Northern Lights is 2.41 times less risky than Karat Packaging. It trades about 0.0 of its potential returns per unit of risk. Karat Packaging is currently generating about -0.06 per unit of risk. If you would invest  2,625  in Northern Lights on December 28, 2024 and sell it today you would lose (10.00) from holding Northern Lights or give up 0.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Northern Lights  vs.  Karat Packaging

Northern Lights

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Lights has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Northern Lights is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Karat Packaging

Risk-Adjusted Performance

Very Weak

Over the last 90 days Karat Packaging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Northern Lights and Karat Packaging

The main advantage of trading using opposite Northern Lights and Karat Packaging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, Karat Packaging 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 Karat Packaging will offset losses from the drop in Karat Packaging's long position.

The idea behind Northern Lights and Karat Packaging 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.