Correlation Between Northern Lights and SGI Enhanced

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

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

Diversification Opportunities for Northern Lights and SGI Enhanced

0.39

Correlation Coefficient

Northern Lights  SGI Enhanced

Weak diversification

The 3 months correlation between Northern and SGI is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and SGI Enhanced Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SGI Enhanced Global 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 SGI Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SGI Enhanced Global has no effect on the direction of Northern Lights i.e., Northern Lights and SGI Enhanced go up and down completely randomly.

Pair Corralation between Northern Lights and SGI Enhanced

Given the investment horizon of 90 days Northern Lights is expected to generate 1.19 times more return on investment than SGI Enhanced. However, Northern Lights is 1.19 times more volatile than SGI Enhanced Global. It trades about 0.14 of its potential returns per unit of risk. SGI Enhanced Global is currently generating about 0.1 per unit of risk. If you would invest  2,947  in Northern Lights on September 12, 2024 and sell it today you would earn a total of  185.00  from holding Northern Lights or generate 6.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Northern Lights  vs.  SGI Enhanced Global

Northern Lights

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Northern Lights is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

SGI Enhanced Global

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SGI Enhanced Global are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SGI Enhanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and SGI Enhanced

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

The idea behind Northern Lights and SGI Enhanced Global 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.