Correlation Between Northern Lights and Toroso Investments

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

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

Diversification Opportunities for Northern Lights and Toroso Investments

0.56

Correlation Coefficient

Northern Lights  Toroso Investments

Very weak diversification

The 3 months correlation between Northern and Toroso is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Toroso Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toroso Investments 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 Toroso Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toroso Investments has no effect on the direction of Northern Lights i.e., Northern Lights and Toroso Investments go up and down completely randomly.

Pair Corralation between Northern Lights and Toroso Investments

Given the investment horizon of 90 days Northern Lights is expected to generate 1.13 times more return on investment than Toroso Investments. However, Northern Lights is 1.13 times more volatile than Toroso Investments. It trades about 0.1 of its potential returns per unit of risk. Toroso Investments is currently generating about -0.1 per unit of risk. If you would invest  2,479  in Northern Lights on November 1, 2024 and sell it today you would earn a total of  1,083  from holding Northern Lights or generate 43.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	7.3%
Values	Daily Returns

Northern Lights  vs.  Toroso Investments

Northern Lights

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

Toroso Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toroso Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Toroso Investments is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Northern Lights and Toroso Investments

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

The idea behind Northern Lights and Toroso Investments 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.