Correlation Between VanEck Africa and Northern Lights

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

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

Diversification Opportunities for VanEck Africa and Northern Lights

-0.12

Correlation Coefficient

VanEck Africa  Northern Lights

Good diversification

The 3 months correlation between VanEck and Northern is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Africa Index and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and VanEck Africa 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 VanEck Africa Index 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 VanEck Africa i.e., VanEck Africa and Northern Lights go up and down completely randomly.

Pair Corralation between VanEck Africa and Northern Lights

Considering the 90-day investment horizon VanEck Africa Index is expected to generate 1.55 times more return on investment than Northern Lights. However, VanEck Africa is 1.55 times more volatile than Northern Lights. It trades about 0.26 of its potential returns per unit of risk. Northern Lights is currently generating about 0.05 per unit of risk. If you would invest  1,305  in VanEck Africa Index on February 16, 2024 and sell it today you would earn a total of  264.00  from holding VanEck Africa Index or generate 20.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

VanEck Africa Index  vs.  Northern Lights

VanEck Africa Index

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Africa Index are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, VanEck Africa disclosed solid returns over the last few months and may actually be approaching a breakup point.

Northern Lights

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Northern Lights is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VanEck Africa and Northern Lights

The main advantage of trading using opposite VanEck Africa and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Africa 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 VanEck Africa Index 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.