Correlation Between Northern Lights and FIRE Funds

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

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

Diversification Opportunities for Northern Lights and FIRE Funds

0.8

Correlation Coefficient

Northern Lights  FIRE Funds

Very poor diversification

The 3 months correlation between Northern and FIRE is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and FIRE Funds Wealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIRE Funds Wealth 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 FIRE Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIRE Funds Wealth has no effect on the direction of Northern Lights i.e., Northern Lights and FIRE Funds go up and down completely randomly.

Pair Corralation between Northern Lights and FIRE Funds

Considering the 90-day investment horizon Northern Lights is expected to under-perform the FIRE Funds. In addition to that, Northern Lights is 2.01 times more volatile than FIRE Funds Wealth. It trades about -0.09 of its total potential returns per unit of risk. FIRE Funds Wealth is currently generating about 0.01 per unit of volatility. If you would invest  1,990  in FIRE Funds Wealth on December 20, 2024 and sell it today you would earn a total of  7.10  from holding FIRE Funds Wealth or generate 0.36% return on investment over 90 days.

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

Northern Lights  vs.  FIRE Funds Wealth

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 very healthy technical and fundamental indicators, Northern Lights is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

FIRE Funds Wealth

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FIRE Funds Wealth are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, FIRE Funds is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Northern Lights and FIRE Funds

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

The idea behind Northern Lights and FIRE Funds Wealth 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.