Correlation Between OShares Quality and Northern Lights

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

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

Diversification Opportunities for OShares Quality and Northern Lights

0.81

Correlation Coefficient

OShares Quality  Northern Lights

Very poor diversification

The 3 months correlation between OShares and Northern is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding OShares Quality Dividend and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and OShares Quality 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 OShares Quality Dividend 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 OShares Quality i.e., OShares Quality and Northern Lights go up and down completely randomly.

Pair Corralation between OShares Quality and Northern Lights

Given the investment horizon of 90 days OShares Quality is expected to generate 1.07 times less return on investment than Northern Lights. But when comparing it to its historical volatility, OShares Quality Dividend is 1.26 times less risky than Northern Lights. It trades about 0.09 of its potential returns per unit of risk. Northern Lights is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,946  in Northern Lights on October 14, 2024 and sell it today you would earn a total of  447.00  from holding Northern Lights or generate 15.17% return on investment over 90 days.

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

OShares Quality Dividend  vs.  Northern Lights

OShares Quality Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Quality Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, OShares Quality is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with OShares Quality and Northern Lights

The main advantage of trading using opposite OShares Quality and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OShares Quality 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 OShares Quality Dividend 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.