Correlation Between Northern Lights and Capital Group

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

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

Diversification Opportunities for Northern Lights and Capital Group

-0.07

Correlation Coefficient

Northern Lights  Capital Group

Good diversification

The 3 months correlation between Northern and Capital is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Capital Group International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Intern 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 Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Intern has no effect on the direction of Northern Lights i.e., Northern Lights and Capital Group go up and down completely randomly.

Pair Corralation between Northern Lights and Capital Group

Given the investment horizon of 90 days Northern Lights is expected to under-perform the Capital Group. In addition to that, Northern Lights is 1.16 times more volatile than Capital Group International. It trades about -0.02 of its total potential returns per unit of risk. Capital Group International is currently generating about 0.17 per unit of volatility. If you would invest  2,407  in Capital Group International on December 29, 2024 and sell it today you would earn a total of  216.00  from holding Capital Group International or generate 8.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Northern Lights  vs.  Capital Group International

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.

Capital Group Intern

Risk-Adjusted Performance

Good

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

Pair Trading with Northern Lights and Capital Group

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

The idea behind Northern Lights and Capital Group International 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.