Correlation Between Northern Lights and IShares Core

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

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

Diversification Opportunities for Northern Lights and IShares Core

0.78

Correlation Coefficient

Northern Lights  IShares Core

Poor diversification

The 3 months correlation between Northern and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP 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 IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Northern Lights i.e., Northern Lights and IShares Core go up and down completely randomly.

Pair Corralation between Northern Lights and IShares Core

Given the investment horizon of 90 days Northern Lights is expected to generate 1.08 times less return on investment than IShares Core. In addition to that, Northern Lights is 1.18 times more volatile than iShares Core SP. It trades about 0.07 of its total potential returns per unit of risk. iShares Core SP is currently generating about 0.09 per unit of volatility. If you would invest  8,690  in iShares Core SP on September 30, 2024 and sell it today you would earn a total of  661.00  from holding iShares Core SP or generate 7.61% return on investment over 90 days.

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

Northern Lights  vs.  iShares Core SP

Northern Lights

Risk-Adjusted Performance

0 of 100

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.

iShares Core SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Core 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 IShares Core

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

The idea behind Northern Lights and iShares Core SP 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.