Correlation Between Northern Lights and IDX Dynamic

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

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

Diversification Opportunities for Northern Lights and IDX Dynamic

0.59

Correlation Coefficient

Northern Lights  IDX Dynamic

Very weak diversification

The 3 months correlation between Northern and IDX is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and IDX Dynamic Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDX Dynamic Fixed 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 IDX Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDX Dynamic Fixed has no effect on the direction of Northern Lights i.e., Northern Lights and IDX Dynamic go up and down completely randomly.

Pair Corralation between Northern Lights and IDX Dynamic

Given the investment horizon of 90 days Northern Lights is expected to under-perform the IDX Dynamic. In addition to that, Northern Lights is 1.61 times more volatile than IDX Dynamic Fixed. It trades about -0.03 of its total potential returns per unit of risk. IDX Dynamic Fixed is currently generating about 0.05 per unit of volatility. If you would invest  2,306  in IDX Dynamic Fixed on December 19, 2024 and sell it today you would earn a total of  10.00  from holding IDX Dynamic Fixed or generate 0.43% return on investment over 90 days.

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

Northern Lights  vs.  IDX Dynamic 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.

IDX Dynamic Fixed

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IDX Dynamic Fixed are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, IDX Dynamic is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Northern Lights and IDX Dynamic

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

The idea behind Northern Lights and IDX Dynamic 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.