Correlation Between First Trust and Northern Lights

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Can any of the company-specific risk be diversified away by investing in both First Trust 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 First Trust and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Multi Asset and Northern Lights, you can compare the effects of market volatilities on First Trust 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 First Trust with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Northern Lights.

Diversification Opportunities for First Trust and Northern Lights

  Correlation Coefficient

Average diversification

The 3 months correlation between First and Northern is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi-Asset and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and First Trust 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 First Trust Multi Asset 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 First Trust i.e., First Trust and Northern Lights go up and down completely randomly.

Pair Corralation between First Trust and Northern Lights

Given the investment horizon of 90 days First Trust Multi Asset is expected to generate 1.12 times more return on investment than Northern Lights. However, First Trust is 1.12 times more volatile than Northern Lights. It trades about 0.22 of its potential returns per unit of risk. Northern Lights is currently generating about -0.05 per unit of risk. If you would invest  1,455  in First Trust Multi Asset on June 23, 2023 and sell it today you would earn a total of  33.00  from holding First Trust Multi Asset or generate 2.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

First Trust Multi-Asset  vs.  Northern Lights

First Trust Multi-Asset 

First Performance

12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Northern Lights 

Northern Performance

0 of 100
Over the last 90 days Northern Lights has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Northern Lights is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.

First Trust and Northern Lights Volatility Contrast

   Predicted Return Density   

Pair Trading with First Trust and Northern Lights

The main advantage of trading using opposite First Trust and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust 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 First Trust Multi Asset 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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