Correlation Between Madison ETFs and Northern Lights

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

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

Diversification Opportunities for Madison ETFs and Northern Lights

0.65

Correlation Coefficient

Madison ETFs  Northern Lights

Poor diversification

The 3 months correlation between Madison and Northern is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Madison ETFs Trust and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Madison ETFs 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 Madison ETFs Trust 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 Madison ETFs i.e., Madison ETFs and Northern Lights go up and down completely randomly.

Pair Corralation between Madison ETFs and Northern Lights

Given the investment horizon of 90 days Madison ETFs is expected to generate 2.52 times less return on investment than Northern Lights. In addition to that, Madison ETFs is 1.0 times more volatile than Northern Lights. It trades about 0.03 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.07 per unit of volatility. If you would invest  2,533  in Northern Lights on December 21, 2024 and sell it today you would earn a total of  76.00  from holding Northern Lights or generate 3.0% return on investment over 90 days.

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

Madison ETFs Trust  vs.  Northern Lights

Madison ETFs Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Madison ETFs Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Madison ETFs is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Northern Lights

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Northern Lights is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Madison ETFs and Northern Lights

The main advantage of trading using opposite Madison ETFs and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison ETFs 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 Madison ETFs Trust 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.

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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 Stocks Directory module to find actively traded stocks across global markets.