Correlation Between Northern Lights and IShares ESG

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

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

Diversification Opportunities for Northern Lights and IShares ESG

0.21

Correlation Coefficient

Northern Lights  IShares ESG

Modest diversification

The 3 months correlation between Northern and IShares is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and iShares ESG Aware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aware 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 IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Aware has no effect on the direction of Northern Lights i.e., Northern Lights and IShares ESG go up and down completely randomly.

Pair Corralation between Northern Lights and IShares ESG

Considering the 90-day investment horizon Northern Lights is expected to generate 11.94 times less return on investment than IShares ESG. But when comparing it to its historical volatility, Northern Lights is 2.6 times less risky than IShares ESG. It trades about 0.03 of its potential returns per unit of risk. iShares ESG Aware is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,549  in iShares ESG Aware on September 12, 2024 and sell it today you would earn a total of  172.00  from holding iShares ESG Aware or generate 4.85% 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.  iShares ESG Aware

Northern Lights

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

iShares ESG Aware

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and IShares ESG

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

The idea behind Northern Lights and iShares ESG Aware 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.