Correlation Between International Business and Northern Lights

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Can any of the company-specific risk be diversified away by investing in both International Business 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 International Business and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Business Machines and Northern Lights, you can compare the effects of market volatilities on International Business 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 International Business with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and Northern Lights.

Diversification Opportunities for International Business and Northern Lights

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between International and Northern is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and International Business 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 International Business Machines 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 International Business i.e., International Business and Northern Lights go up and down completely randomly.

Pair Corralation between International Business and Northern Lights

Considering the 90-day investment horizon International Business is expected to generate 1.42 times less return on investment than Northern Lights. In addition to that, International Business is 1.57 times more volatile than Northern Lights. It trades about 0.11 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.25 per unit of volatility. If you would invest  3,695  in Northern Lights on December 29, 2023 and sell it today you would earn a total of  181.00  from holding Northern Lights or generate 4.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

International Business Machine  vs.  Northern Lights

 Performance 
       Timeline  
International Business 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, International Business displayed solid returns over the last few months and may actually be approaching a breakup point.
Northern Lights 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Northern Lights may actually be approaching a critical reversion point that can send shares even higher in April 2024.

International Business and Northern Lights Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with International Business and Northern Lights

The main advantage of trading using opposite International Business and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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.
Check out your portfolio center.
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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