Correlation Between Northern Lights and Vanguard
Can any of the company-specific risk be diversified away by investing in both Northern Lights and Vanguard 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 Northern Lights and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and Vanguard SP 500, you can compare the effects of market volatilities on Northern Lights and Vanguard 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 Northern Lights with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Vanguard.
Diversification Opportunities for Northern Lights and Vanguard
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and Vanguard is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Northern Lights 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 Northern Lights are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Northern Lights i.e., Northern Lights and Vanguard go up and down completely randomly.
Pair Corralation between Northern Lights and Vanguard
Given the investment horizon of 90 days Northern Lights is expected to under-perform the Vanguard. In addition to that, Northern Lights is 1.25 times more volatile than Vanguard SP 500. It trades about -0.06 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.05 per unit of volatility. If you would invest 17,300 in Vanguard SP 500 on January 24, 2024 and sell it today you would earn a total of 207.00 from holding Vanguard SP 500 or generate 1.2% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Northern Lights vs. Vanguard SP 500
Performance |
Timeline |
Northern Lights |
Vanguard SP 500 |
Northern Lights and Vanguard Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northern Lights and Vanguard
The main advantage of trading using opposite Northern Lights and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.Northern Lights vs. Sterling Capital Focus | Northern Lights vs. Upholdings Compound Kings | Northern Lights vs. Northern Lights | Northern Lights vs. First Trust Exchange Traded |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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