Correlation Between Northern Lights and HCM Defender

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

By analyzing existing cross correlation between Northern Lights and HCM Defender 100, you can compare the effects of market volatilities on Northern Lights and HCM Defender 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 HCM Defender. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and HCM Defender.

Diversification Opportunities for Northern Lights and HCM Defender

0.53

Correlation Coefficient

Northern Lights  HCM Defender

Very weak diversification

The 3 months correlation between Northern and HCM is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and HCM Defender 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCM Defender 100 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 HCM Defender. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCM Defender 100 has no effect on the direction of Northern Lights i.e., Northern Lights and HCM Defender go up and down completely randomly.

Pair Corralation between Northern Lights and HCM Defender

Given the investment horizon of 90 days Northern Lights is expected to generate 0.63 times more return on investment than HCM Defender. However, Northern Lights is 1.58 times less risky than HCM Defender. It trades about -0.02 of its potential returns per unit of risk. HCM Defender 100 is currently generating about -0.16 per unit of risk. If you would invest  3,460  in Northern Lights on December 29, 2024 and sell it today you would lose (54.00) from holding Northern Lights or give up 1.56% of portfolio value over 90 days.

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

Northern Lights  vs.  HCM Defender 100

Northern Lights

Risk-Adjusted Performance

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.

HCM Defender 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days HCM Defender 100 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the Etf traders.

Pair Trading with Northern Lights and HCM Defender

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

The idea behind Northern Lights and HCM Defender 100 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.