Correlation Between Northern Lights and Inspire SmallMid

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

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

Diversification Opportunities for Northern Lights and Inspire SmallMid

0.89

Correlation Coefficient

Northern Lights  Inspire SmallMid

Very poor diversification

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

Pair Corralation between Northern Lights and Inspire SmallMid

Given the investment horizon of 90 days Northern Lights is expected to generate 1.43 times less return on investment than Inspire SmallMid. But when comparing it to its historical volatility, Northern Lights is 1.41 times less risky than Inspire SmallMid. It trades about 0.09 of its potential returns per unit of risk. Inspire SmallMid Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,761  in Inspire SmallMid Cap on August 30, 2024 and sell it today you would earn a total of  284.00  from holding Inspire SmallMid Cap or generate 7.55% 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.  Inspire SmallMid Cap

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. Despite quite persistent fundamental drivers, Northern Lights is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Inspire SmallMid Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire SmallMid Cap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Inspire SmallMid may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Northern Lights and Inspire SmallMid

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

The idea behind Northern Lights and Inspire SmallMid Cap 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.