Correlation Between Northern Lights and Global X

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

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

Diversification Opportunities for Northern Lights and Global X

-0.27

Correlation Coefficient

Northern Lights  Global X

Very good diversification

The 3 months correlation between Northern and Global is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Global X Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Funds 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Funds has no effect on the direction of Northern Lights i.e., Northern Lights and Global X go up and down completely randomly.

Pair Corralation between Northern Lights and Global X

Given the investment horizon of 90 days Northern Lights is expected to under-perform the Global X. But the etf apears to be less risky and, when comparing its historical volatility, Northern Lights is 1.49 times less risky than Global X. The etf trades about -0.05 of its potential returns per unit of risk. The Global X Funds is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,811  in Global X Funds on December 26, 2024 and sell it today you would earn a total of  944.00  from holding Global X Funds or generate 24.77% return on investment over 90 days.

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

Northern Lights  vs.  Global X Funds

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.

Global X Funds

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Funds are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, Global X exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Lights and Global X

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

The idea behind Northern Lights and Global X Funds 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.