Correlation Between Northern Lights and BNY Mellon

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

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

Diversification Opportunities for Northern Lights and BNY Mellon

0.75

Correlation Coefficient

Northern Lights  BNY Mellon

Poor diversification

The 3 months correlation between Northern and BNY is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and BNY Mellon ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNY Mellon ETF 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 BNY Mellon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNY Mellon ETF has no effect on the direction of Northern Lights i.e., Northern Lights and BNY Mellon go up and down completely randomly.

Pair Corralation between Northern Lights and BNY Mellon

Given the investment horizon of 90 days Northern Lights is expected to under-perform the BNY Mellon. In addition to that, Northern Lights is 1.24 times more volatile than BNY Mellon ETF. It trades about -0.02 of its total potential returns per unit of risk. BNY Mellon ETF is currently generating about 0.07 per unit of volatility. If you would invest  2,466  in BNY Mellon ETF on December 28, 2024 and sell it today you would earn a total of  80.00  from holding BNY Mellon ETF or generate 3.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Northern Lights  vs.  BNY Mellon ETF

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.

BNY Mellon ETF

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BNY Mellon ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, BNY Mellon is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Northern Lights and BNY Mellon

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

The idea behind Northern Lights and BNY Mellon ETF 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.