Correlation Between Northern Lights and ZEGA Buy

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

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

Diversification Opportunities for Northern Lights and ZEGA Buy

0.89

Correlation Coefficient

Northern Lights  ZEGA Buy

Very poor diversification

The 3 months correlation between Northern and ZEGA is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and ZEGA Buy and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZEGA Buy 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 ZEGA Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZEGA Buy has no effect on the direction of Northern Lights i.e., Northern Lights and ZEGA Buy go up and down completely randomly.

Pair Corralation between Northern Lights and ZEGA Buy

Given the investment horizon of 90 days Northern Lights is expected to generate 1.48 times more return on investment than ZEGA Buy. However, Northern Lights is 1.48 times more volatile than ZEGA Buy and. It trades about 0.06 of its potential returns per unit of risk. ZEGA Buy and is currently generating about 0.02 per unit of risk. If you would invest  2,383  in Northern Lights on January 25, 2024 and sell it today you would earn a total of  748.00  from holding Northern Lights or generate 31.39% 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.  ZEGA Buy and

Northern Lights

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 6 (%) 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.

ZEGA Buy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZEGA Buy and are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, ZEGA Buy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Northern Lights and ZEGA Buy

The main advantage of trading using opposite Northern Lights and ZEGA Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, ZEGA Buy 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 ZEGA Buy will offset losses from the drop in ZEGA Buy's long position.

The idea behind Northern Lights and ZEGA Buy and 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.