Correlation Between Northern Lights and Ocean Park

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

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

Diversification Opportunities for Northern Lights and Ocean Park

0.67

Correlation Coefficient

Northern Lights  Ocean Park

Poor diversification

The 3 months correlation between Northern and Ocean is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Ocean Park High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Park High 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 Ocean Park. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Park High has no effect on the direction of Northern Lights i.e., Northern Lights and Ocean Park go up and down completely randomly.

Pair Corralation between Northern Lights and Ocean Park

Given the investment horizon of 90 days Northern Lights is expected to under-perform the Ocean Park. In addition to that, Northern Lights is 3.6 times more volatile than Ocean Park High. It trades about -0.04 of its total potential returns per unit of risk. Ocean Park High is currently generating about -0.01 per unit of volatility. If you would invest  2,528  in Ocean Park High on October 7, 2024 and sell it today you would lose (2.00) from holding Ocean Park High or give up 0.08% of portfolio value over 90 days.

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

Northern Lights  vs.  Ocean Park High

Northern Lights

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Ocean Park High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ocean Park High has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Ocean Park is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Northern Lights and Ocean Park

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

The idea behind Northern Lights and Ocean Park High 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.