Correlation Between SPDR Bloomberg and Northern Lights

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

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

Diversification Opportunities for SPDR Bloomberg and Northern Lights

0.84

Correlation Coefficient

SPDR Bloomberg  Northern Lights

Very poor diversification

The 3 months correlation between SPDR and Northern is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Bloomberg High and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and SPDR Bloomberg 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 SPDR Bloomberg High 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 SPDR Bloomberg i.e., SPDR Bloomberg and Northern Lights go up and down completely randomly.

Pair Corralation between SPDR Bloomberg and Northern Lights

Considering the 90-day investment horizon SPDR Bloomberg High is expected to generate 1.65 times more return on investment than Northern Lights. However, SPDR Bloomberg is 1.65 times more volatile than Northern Lights. It trades about -0.03 of its potential returns per unit of risk. Northern Lights is currently generating about -0.07 per unit of risk. If you would invest  9,355  in SPDR Bloomberg High on February 3, 2024 and sell it today you would lose (25.00) from holding SPDR Bloomberg High or give up 0.27% of portfolio value over 90 days.

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

SPDR Bloomberg High  vs.  Northern Lights

SPDR Bloomberg High

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Bloomberg High are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SPDR Bloomberg is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Northern Lights

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Northern Lights is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Bloomberg and Northern Lights

The main advantage of trading using opposite SPDR Bloomberg and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Bloomberg 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 SPDR Bloomberg High 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.