Correlation Between Pinnacle Focused and Northern Lights

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

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

Diversification Opportunities for Pinnacle Focused and Northern Lights

0.96

Correlation Coefficient

Pinnacle Focused  Northern Lights

Almost no diversification

The 3 months correlation between Pinnacle and Northern is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle Focused Opportunities and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Pinnacle Focused 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 Pinnacle Focused Opportunities 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 Pinnacle Focused i.e., Pinnacle Focused and Northern Lights go up and down completely randomly.

Pair Corralation between Pinnacle Focused and Northern Lights

Given the investment horizon of 90 days Pinnacle Focused Opportunities is expected to generate 1.5 times more return on investment than Northern Lights. However, Pinnacle Focused is 1.5 times more volatile than Northern Lights. It trades about 0.51 of its potential returns per unit of risk. Northern Lights is currently generating about 0.31 per unit of risk. If you would invest  2,975  in Pinnacle Focused Opportunities on September 3, 2024 and sell it today you would earn a total of  542.00  from holding Pinnacle Focused Opportunities or generate 18.22% return on investment over 90 days.

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

Pinnacle Focused Opportunities  vs.  Northern Lights

Pinnacle Focused Opp

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle Focused Opportunities are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Pinnacle Focused unveiled solid returns over the last few months and may actually be approaching a breakup point.

Northern Lights

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Northern Lights may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pinnacle Focused and Northern Lights

The main advantage of trading using opposite Pinnacle Focused and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinnacle Focused 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 Pinnacle Focused Opportunities 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .