Correlation Between Aptus Defined and Northern Lights

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

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

Diversification Opportunities for Aptus Defined and Northern Lights

0.44

Correlation Coefficient

Aptus Defined  Northern Lights

Very weak diversification

The 3 months correlation between Aptus and Northern is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Aptus Defined Risk and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Aptus Defined 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 Aptus Defined Risk 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 Aptus Defined i.e., Aptus Defined and Northern Lights go up and down completely randomly.

Pair Corralation between Aptus Defined and Northern Lights

Given the investment horizon of 90 days Aptus Defined Risk is expected to generate 1.07 times more return on investment than Northern Lights. However, Aptus Defined is 1.07 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 -0.16 per unit of risk. If you would invest  2,830  in Aptus Defined Risk on September 28, 2024 and sell it today you would lose (31.00) from holding Aptus Defined Risk or give up 1.1% of portfolio value over 90 days.

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

Aptus Defined Risk  vs.  Northern Lights

Aptus Defined Risk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aptus Defined Risk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Aptus Defined is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Northern Lights

Risk-Adjusted Performance

0 of 100

Very Weak

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 recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Aptus Defined and Northern Lights

The main advantage of trading using opposite Aptus Defined and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aptus Defined 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 Aptus Defined Risk 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.