Correlation Between Northern Lights and FundX Investment

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

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

Diversification Opportunities for Northern Lights and FundX Investment

0.26

Correlation Coefficient

Northern Lights  FundX Investment

Modest diversification

The 3 months correlation between Northern and FundX is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and FundX Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FundX Investment Trust 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 FundX Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FundX Investment Trust has no effect on the direction of Northern Lights i.e., Northern Lights and FundX Investment go up and down completely randomly.

Pair Corralation between Northern Lights and FundX Investment

Given the investment horizon of 90 days Northern Lights is expected to generate 2.17 times more return on investment than FundX Investment. However, Northern Lights is 2.17 times more volatile than FundX Investment Trust. It trades about 0.26 of its potential returns per unit of risk. FundX Investment Trust is currently generating about 0.23 per unit of risk. If you would invest  2,692  in Northern Lights on September 3, 2024 and sell it today you would earn a total of  90.00  from holding Northern Lights or generate 3.34% return on investment over 90 days.

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

Northern Lights  vs.  FundX Investment Trust

Northern Lights

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Northern Lights is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

FundX Investment Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FundX Investment Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, FundX Investment is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and FundX Investment

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

The idea behind Northern Lights and FundX Investment Trust 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.