Correlation Between Northern Lights and Amplify CWP

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

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

Diversification Opportunities for Northern Lights and Amplify CWP

0.75

Correlation Coefficient

Northern Lights  Amplify CWP

Poor diversification

The 3 months correlation between Northern and Amplify is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Amplify CWP Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amplify CWP Enhanced 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 Amplify CWP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amplify CWP Enhanced has no effect on the direction of Northern Lights i.e., Northern Lights and Amplify CWP go up and down completely randomly.

Pair Corralation between Northern Lights and Amplify CWP

Given the investment horizon of 90 days Northern Lights is expected to generate 14.45 times less return on investment than Amplify CWP. In addition to that, Northern Lights is 1.38 times more volatile than Amplify CWP Enhanced. It trades about 0.01 of its total potential returns per unit of risk. Amplify CWP Enhanced is currently generating about 0.11 per unit of volatility. If you would invest  3,476  in Amplify CWP Enhanced on October 9, 2024 and sell it today you would earn a total of  575.00  from holding Amplify CWP Enhanced or generate 16.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.43%
Values	Daily Returns

Northern Lights  vs.  Amplify CWP Enhanced

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. Despite quite persistent basic indicators, Northern Lights is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Amplify CWP Enhanced

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Northern Lights and Amplify CWP

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

The idea behind Northern Lights and Amplify CWP Enhanced 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.