Correlation Between Navigator Tactical and Northern Lights

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

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

Diversification Opportunities for Navigator Tactical and Northern Lights

0.91

Correlation Coefficient

Navigator Tactical  Northern Lights

Almost no diversification

The 3 months correlation between Navigator and Northern is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Navigator Tactical Investment and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Navigator Tactical 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 Navigator Tactical Investment are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Navigator Tactical i.e., Navigator Tactical and Northern Lights go up and down completely randomly.

Pair Corralation between Navigator Tactical and Northern Lights

Assuming the 90 days horizon Navigator Tactical Investment is expected to generate 0.14 times more return on investment than Northern Lights. However, Navigator Tactical Investment is 7.09 times less risky than Northern Lights. It trades about 0.14 of its potential returns per unit of risk. Northern Lights is currently generating about -0.08 per unit of risk. If you would invest  903.00  in Navigator Tactical Investment on December 2, 2024 and sell it today you would earn a total of  3.00  from holding Navigator Tactical Investment or generate 0.33% return on investment over 90 days.

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

Navigator Tactical Investment  vs.  Northern Lights

Navigator Tactical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Navigator Tactical Investment has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Navigator Tactical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northern Lights

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Lights has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Navigator Tactical and Northern Lights

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

The idea behind Navigator Tactical Investment and Northern Lights 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.