Correlation Between DHDG and Northern Lights

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

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

Diversification Opportunities for DHDG and Northern Lights

0.0

Correlation Coefficient

DHDG  Northern Lights

Pay attention - limited upside

The 3 months correlation between DHDG and Northern is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding DHDG and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and DHDG 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 DHDG 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 DHDG i.e., DHDG and Northern Lights go up and down completely randomly.

Pair Corralation between DHDG and Northern Lights

If you would invest  2,542  in Northern Lights on January 19, 2024 and sell it today you would earn a total of  567.00  from holding Northern Lights or generate 22.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

DHDG  vs.  Northern Lights

DHDG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DHDG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, DHDG is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Northern Lights

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 7 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with DHDG and Northern Lights

The main advantage of trading using opposite DHDG and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DHDG 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 DHDG 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.