Correlation Between IShares Emergent and Northern Lights

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

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

Diversification Opportunities for IShares Emergent and Northern Lights

0.73

Correlation Coefficient

IShares Emergent  Northern Lights

Poor diversification

The 3 months correlation between IShares and Northern is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares Emergent Food and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and IShares Emergent 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 iShares Emergent Food 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 IShares Emergent i.e., IShares Emergent and Northern Lights go up and down completely randomly.

Pair Corralation between IShares Emergent and Northern Lights

Given the investment horizon of 90 days IShares Emergent is expected to generate 1.46 times less return on investment than Northern Lights. In addition to that, IShares Emergent is 1.08 times more volatile than Northern Lights. It trades about 0.07 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.12 per unit of volatility. If you would invest  2,979  in Northern Lights on September 13, 2024 and sell it today you would earn a total of  153.00  from holding Northern Lights or generate 5.14% return on investment over 90 days.

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

iShares Emergent Food  vs.  Northern Lights

iShares Emergent Food

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Emergent Food are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares Emergent is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Northern Lights

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 9 (%) 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.

Pair Trading with IShares Emergent and Northern Lights

The main advantage of trading using opposite IShares Emergent and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Emergent 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 iShares Emergent Food 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.