Correlation Between Northern Lights and Columbia Diversified

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

By analyzing existing cross correlation between Northern Lights and Columbia Diversified Fixed, you can compare the effects of market volatilities on Northern Lights and Columbia Diversified 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 Columbia Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Columbia Diversified.

Diversification Opportunities for Northern Lights and Columbia Diversified

-0.33

Correlation Coefficient

Northern Lights  Columbia Diversified

Very good diversification

The 3 months correlation between Northern and Columbia is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Columbia Diversified Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Diversified 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 Columbia Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Diversified has no effect on the direction of Northern Lights i.e., Northern Lights and Columbia Diversified go up and down completely randomly.

Pair Corralation between Northern Lights and Columbia Diversified

Given the investment horizon of 90 days Northern Lights is expected to under-perform the Columbia Diversified. But the etf apears to be less risky and, when comparing its historical volatility, Northern Lights is 1.19 times less risky than Columbia Diversified. The etf trades about -0.08 of its potential returns per unit of risk. The Columbia Diversified Fixed is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,742  in Columbia Diversified Fixed on December 29, 2024 and sell it today you would earn a total of  43.00  from holding Columbia Diversified Fixed or generate 2.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Northern Lights  vs.  Columbia Diversified Fixed

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. In spite of fairly strong forward-looking signals, Northern Lights is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Columbia Diversified

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Diversified Fixed are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Columbia Diversified is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Northern Lights and Columbia Diversified

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

The idea behind Northern Lights and Columbia Diversified Fixed 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.