Correlation Between Northern Lights and PGIM Large

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

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

Diversification Opportunities for Northern Lights and PGIM Large

0.81

Correlation Coefficient

Northern Lights  PGIM Large

Very poor diversification

The 3 months correlation between Northern and PGIM is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and PGIM Large Cap Buffer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Large Cap 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 PGIM Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Large Cap has no effect on the direction of Northern Lights i.e., Northern Lights and PGIM Large go up and down completely randomly.

Pair Corralation between Northern Lights and PGIM Large

Given the investment horizon of 90 days Northern Lights is expected to generate 1.92 times more return on investment than PGIM Large. However, Northern Lights is 1.92 times more volatile than PGIM Large Cap Buffer. It trades about 0.1 of its potential returns per unit of risk. PGIM Large Cap Buffer is currently generating about 0.17 per unit of risk. If you would invest  2,653  in Northern Lights on September 30, 2024 and sell it today you would earn a total of  845.00  from holding Northern Lights or generate 31.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	45.04%
Values	Daily Returns

Northern Lights  vs.  PGIM Large Cap Buffer

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.

PGIM Large Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PGIM Large Cap Buffer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, PGIM Large is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Northern Lights and PGIM Large

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

The idea behind Northern Lights and PGIM Large Cap Buffer 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.