Correlation Between Northern Lights and AdvisorShares

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

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

Diversification Opportunities for Northern Lights and AdvisorShares

0.8

Correlation Coefficient

Northern Lights  AdvisorShares

Very poor diversification

The 3 months correlation between Northern and AdvisorShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and AdvisorShares Q Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Q Dynamic 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 AdvisorShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Q Dynamic has no effect on the direction of Northern Lights i.e., Northern Lights and AdvisorShares go up and down completely randomly.

Pair Corralation between Northern Lights and AdvisorShares

Given the investment horizon of 90 days Northern Lights is expected to generate 9.89 times less return on investment than AdvisorShares. But when comparing it to its historical volatility, Northern Lights is 1.07 times less risky than AdvisorShares. It trades about 0.01 of its potential returns per unit of risk. AdvisorShares Q Dynamic is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,525  in AdvisorShares Q Dynamic on October 8, 2024 and sell it today you would earn a total of  116.00  from holding AdvisorShares Q Dynamic or generate 3.29% return on investment over 90 days.

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

Northern Lights  vs.  AdvisorShares Q Dynamic

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.

AdvisorShares Q Dynamic

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Q Dynamic are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, AdvisorShares is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and AdvisorShares

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

The idea behind Northern Lights and AdvisorShares Q Dynamic 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..