Correlation Between Northern Lights and WisdomTree MidCap

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

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

Diversification Opportunities for Northern Lights and WisdomTree MidCap

0.91

Correlation Coefficient

Northern Lights  WisdomTree MidCap

Almost no diversification

The 3 months correlation between Northern and WisdomTree is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and WisdomTree MidCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree MidCap 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 WisdomTree MidCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree MidCap has no effect on the direction of Northern Lights i.e., Northern Lights and WisdomTree MidCap go up and down completely randomly.

Pair Corralation between Northern Lights and WisdomTree MidCap

Given the investment horizon of 90 days Northern Lights is expected to generate 1.66 times less return on investment than WisdomTree MidCap. But when comparing it to its historical volatility, Northern Lights is 1.37 times less risky than WisdomTree MidCap. It trades about 0.16 of its potential returns per unit of risk. WisdomTree MidCap Dividend is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,836  in WisdomTree MidCap Dividend on September 12, 2024 and sell it today you would earn a total of  540.00  from holding WisdomTree MidCap Dividend or generate 11.17% return on investment over 90 days.

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

Northern Lights  vs.  WisdomTree MidCap Dividend

Northern Lights

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Northern Lights may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree MidCap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree MidCap Dividend are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, WisdomTree MidCap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Northern Lights and WisdomTree MidCap

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

The idea behind Northern Lights and WisdomTree MidCap Dividend 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.