Correlation Between EA Series and Northern Lights

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

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

Diversification Opportunities for EA Series and Northern Lights

0.44

Correlation Coefficient

EA Series  Northern Lights

Very weak diversification

The 3 months correlation between DRAI and Northern is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding EA Series Trust and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and EA Series 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 EA Series 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 EA Series i.e., EA Series and Northern Lights go up and down completely randomly.

Pair Corralation between EA Series and Northern Lights

Given the investment horizon of 90 days EA Series is expected to generate 2.35 times less return on investment than Northern Lights. In addition to that, EA Series is 1.21 times more volatile than Northern Lights. It trades about 0.08 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.22 per unit of volatility. If you would invest  2,509  in Northern Lights on September 3, 2024 and sell it today you would earn a total of  275.00  from holding Northern Lights or generate 10.96% return on investment over 90 days.

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

EA Series Trust  vs.  Northern Lights

EA Series Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EA Series Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, EA Series is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Northern Lights

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, Northern Lights may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with EA Series and Northern Lights

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

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.