Correlation Between Northern Lights and ALPSSmith Balanced

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

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

Diversification Opportunities for Northern Lights and ALPSSmith Balanced

0.93

Correlation Coefficient

Northern Lights  ALPSSmith Balanced

Almost no diversification

The 3 months correlation between Northern and ALPSSmith is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and ALPSSmith Balanced Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPSSmith Balanced 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 ALPSSmith Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPSSmith Balanced has no effect on the direction of Northern Lights i.e., Northern Lights and ALPSSmith Balanced go up and down completely randomly.

Pair Corralation between Northern Lights and ALPSSmith Balanced

Given the investment horizon of 90 days Northern Lights is expected to under-perform the ALPSSmith Balanced. In addition to that, Northern Lights is 1.56 times more volatile than ALPSSmith Balanced Opportunity. It trades about -0.06 of its total potential returns per unit of risk. ALPSSmith Balanced Opportunity is currently generating about -0.06 per unit of volatility. If you would invest  1,211  in ALPSSmith Balanced Opportunity on December 30, 2024 and sell it today you would lose (29.00) from holding ALPSSmith Balanced Opportunity or give up 2.39% of portfolio value over 90 days.

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

Northern Lights  vs.  ALPSSmith Balanced Opportunity

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.

ALPSSmith Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALPSSmith Balanced Opportunity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, ALPSSmith Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and ALPSSmith Balanced

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

The idea behind Northern Lights and ALPSSmith Balanced Opportunity 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.