Correlation Between Northern Lights and Vanguard High

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

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

Diversification Opportunities for Northern Lights and Vanguard High

0.87

Correlation Coefficient

Northern Lights  Vanguard High

Very poor diversification

The 3 months correlation between Northern and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Vanguard High Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard High Dividend 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 Vanguard High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard High Dividend has no effect on the direction of Northern Lights i.e., Northern Lights and Vanguard High go up and down completely randomly.

Pair Corralation between Northern Lights and Vanguard High

Given the investment horizon of 90 days Northern Lights is expected to under-perform the Vanguard High. In addition to that, Northern Lights is 1.02 times more volatile than Vanguard High Dividend. It trades about -0.06 of its total potential returns per unit of risk. Vanguard High Dividend is currently generating about -0.05 per unit of volatility. If you would invest  12,936  in Vanguard High Dividend on October 15, 2024 and sell it today you would lose (325.00) from holding Vanguard High Dividend or give up 2.51% of portfolio value over 90 days.

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

Northern Lights  vs.  Vanguard High Dividend

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.

Vanguard High Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard High Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard High is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and Vanguard High

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

The idea behind Northern Lights and Vanguard High Dividend 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.