Correlation Between VanEck Vectors and Northern Lights

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

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

Diversification Opportunities for VanEck Vectors and Northern Lights

0.08

Correlation Coefficient

VanEck Vectors  Northern Lights

Significant diversification

The 3 months correlation between VanEck and Northern is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Vectors Moodys and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and VanEck Vectors 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 VanEck Vectors Moodys 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 VanEck Vectors i.e., VanEck Vectors and Northern Lights go up and down completely randomly.

Pair Corralation between VanEck Vectors and Northern Lights

Given the investment horizon of 90 days VanEck Vectors Moodys is expected to generate 0.3 times more return on investment than Northern Lights. However, VanEck Vectors Moodys is 3.38 times less risky than Northern Lights. It trades about 0.1 of its potential returns per unit of risk. Northern Lights is currently generating about -0.06 per unit of risk. If you would invest  2,104  in VanEck Vectors Moodys on December 29, 2024 and sell it today you would earn a total of  39.00  from holding VanEck Vectors Moodys or generate 1.85% return on investment over 90 days.

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

VanEck Vectors Moodys  vs.  Northern Lights

VanEck Vectors Moodys

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Vectors Moodys are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, VanEck Vectors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 rather sound fundamental indicators, Northern Lights is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VanEck Vectors and Northern Lights

The main advantage of trading using opposite VanEck Vectors and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Vectors 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 VanEck Vectors Moodys 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.