Correlation Between Vident Core and Northern Lights

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

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

Diversification Opportunities for Vident Core and Northern Lights

0.59

Correlation Coefficient

Vident Core  Northern Lights

Very weak diversification

The 3 months correlation between Vident and Northern is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vident Core Bond and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Vident Core 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 Vident Core Bond 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 Vident Core i.e., Vident Core and Northern Lights go up and down completely randomly.

Pair Corralation between Vident Core and Northern Lights

Given the investment horizon of 90 days Vident Core Bond is expected to under-perform the Northern Lights. In addition to that, Vident Core is 1.51 times more volatile than Northern Lights. It trades about -0.08 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.03 per unit of volatility. If you would invest  2,550  in Northern Lights on September 13, 2024 and sell it today you would earn a total of  10.00  from holding Northern Lights or generate 0.39% return on investment over 90 days.

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

Vident Core Bond  vs.  Northern Lights

Vident Core Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vident Core Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Vident Core is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 forward-looking signals, Northern Lights is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vident Core and Northern Lights

The main advantage of trading using opposite Vident Core and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vident Core 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 Vident Core Bond 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.