Correlation Between WBI Power and Northern Lights

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

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

Diversification Opportunities for WBI Power and Northern Lights

0.44

Correlation Coefficient

WBI Power  Northern Lights

Very weak diversification

The 3 months correlation between WBI and Northern is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding WBI Power Factor and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and WBI Power 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 WBI Power Factor 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 WBI Power i.e., WBI Power and Northern Lights go up and down completely randomly.

Pair Corralation between WBI Power and Northern Lights

Given the investment horizon of 90 days WBI Power Factor is expected to under-perform the Northern Lights. In addition to that, WBI Power is 1.38 times more volatile than Northern Lights. It trades about 0.0 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.08 per unit of volatility. If you would invest  2,544  in Northern Lights on December 27, 2024 and sell it today you would earn a total of  95.00  from holding Northern Lights or generate 3.73% return on investment over 90 days.

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

WBI Power Factor  vs.  Northern Lights

WBI Power Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days WBI Power Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, WBI Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northern Lights

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Northern Lights is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with WBI Power and Northern Lights

The main advantage of trading using opposite WBI Power and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WBI Power 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 WBI Power Factor 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.