Correlation Between Northern Lights and Schwab Fundamental

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

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

Diversification Opportunities for Northern Lights and Schwab Fundamental

0.91

Correlation Coefficient

Northern Lights  Schwab Fundamental

Almost no diversification

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

Pair Corralation between Northern Lights and Schwab Fundamental

Given the investment horizon of 90 days Northern Lights is expected to generate 1.01 times less return on investment than Schwab Fundamental. In addition to that, Northern Lights is 1.09 times more volatile than Schwab Fundamental Large. It trades about 0.1 of its total potential returns per unit of risk. Schwab Fundamental Large is currently generating about 0.11 per unit of volatility. If you would invest  1,803  in Schwab Fundamental Large on September 30, 2024 and sell it today you would earn a total of  586.00  from holding Schwab Fundamental Large or generate 32.5% 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.  Schwab Fundamental Large

Northern Lights

Risk-Adjusted Performance

0 of 100

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.

Schwab Fundamental Large

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Northern Lights and Schwab Fundamental

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

The idea behind Northern Lights and Schwab Fundamental Large 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.