Correlation Between Northern Lights and 6 Meridian

Can any of the company-specific risk be diversified away by investing in both Northern Lights and 6 Meridian 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 6 Meridian into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Lights and 6 Meridian Quality, you can compare the effects of market volatilities on Northern Lights and 6 Meridian 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 6 Meridian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and 6 Meridian.

Diversification Opportunities for Northern Lights and 6 Meridian

0.77

Correlation Coefficient

Northern Lights  6 Meridian

Poor diversification

The 3 months correlation between Northern and SXQG is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and 6 Meridian Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 6 Meridian Quality 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 6 Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 6 Meridian Quality has no effect on the direction of Northern Lights i.e., Northern Lights and 6 Meridian go up and down completely randomly.

Pair Corralation between Northern Lights and 6 Meridian

Given the investment horizon of 90 days Northern Lights is expected to generate 0.94 times more return on investment than 6 Meridian. However, Northern Lights is 1.06 times less risky than 6 Meridian. It trades about -0.02 of its potential returns per unit of risk. 6 Meridian Quality is currently generating about -0.1 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	Significant
Accuracy	100.0%
Values	Daily Returns

Northern Lights  vs.  6 Meridian Quality

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.

6 Meridian Quality

Risk-Adjusted Performance

Very Weak

Over the last 90 days 6 Meridian Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Northern Lights and 6 Meridian

The main advantage of trading using opposite Northern Lights and 6 Meridian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, 6 Meridian 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 6 Meridian will offset losses from the drop in 6 Meridian's long position.

The idea behind Northern Lights and 6 Meridian Quality 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.