Correlation Between Strategy Shares and Northern Lights

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

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

Diversification Opportunities for Strategy Shares and Northern Lights

0.34

Correlation Coefficient

Strategy Shares  Northern Lights

Weak diversification

The 3 months correlation between Strategy and Northern is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Strategy Shares NewfoundReSolv and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Strategy Shares 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 Strategy Shares NewfoundReSolve 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 Strategy Shares i.e., Strategy Shares and Northern Lights go up and down completely randomly.

Pair Corralation between Strategy Shares and Northern Lights

Given the investment horizon of 90 days Strategy Shares NewfoundReSolve is expected to under-perform the Northern Lights. In addition to that, Strategy Shares is 4.58 times more volatile than Northern Lights. It trades about -0.06 of its total potential returns per unit of risk. Northern Lights is currently generating about -0.09 per unit of volatility. If you would invest  2,218  in Northern Lights on December 29, 2024 and sell it today you would lose (24.00) from holding Northern Lights or give up 1.08% of portfolio value over 90 days.

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

Strategy Shares NewfoundReSolv  vs.  Northern Lights

Strategy Shares Newf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategy Shares NewfoundReSolve has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Strategy Shares is not utilizing all of its potentials. The current stock price disarray, 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 investors with long positions. In spite of fairly strong technical indicators, Northern Lights is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Strategy Shares and Northern Lights

The main advantage of trading using opposite Strategy Shares and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strategy Shares 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 Strategy Shares NewfoundReSolve 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.