Correlation Between Northern Lights and Cambria Global

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

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

Diversification Opportunities for Northern Lights and Cambria Global

0.02

Correlation Coefficient

Northern Lights  Cambria Global

Significant diversification

The 3 months correlation between Northern and Cambria is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Cambria Global Momentum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambria Global Momentum 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 Cambria Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambria Global Momentum has no effect on the direction of Northern Lights i.e., Northern Lights and Cambria Global go up and down completely randomly.

Pair Corralation between Northern Lights and Cambria Global

Considering the 90-day investment horizon Northern Lights is expected to under-perform the Cambria Global. But the etf apears to be less risky and, when comparing its historical volatility, Northern Lights is 4.09 times less risky than Cambria Global. The etf trades about -0.04 of its potential returns per unit of risk. The Cambria Global Momentum is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,879  in Cambria Global Momentum on December 21, 2024 and sell it today you would earn a total of  32.00  from holding Cambria Global Momentum or generate 1.11% return on investment over 90 days.

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

Northern Lights  vs.  Cambria Global Momentum

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 current stock price disturbance, may contribute to short-term losses for the investors.

Cambria Global Momentum

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Global Momentum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Cambria Global is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and Cambria Global

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

The idea behind Northern Lights and Cambria Global Momentum 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 Transaction History module to view history of all your transactions and understand their impact on performance.