Correlation Between IShares Russell and Northern Lights

Can any of the company-specific risk be diversified away by investing in both IShares Russell 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 Russell 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 Russell 1000 and Northern Lights, you can compare the effects of market volatilities on IShares Russell 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 Russell with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and Northern Lights.

Diversification Opportunities for IShares Russell and Northern Lights

0.9

Correlation Coefficient

IShares Russell  Northern Lights

Almost no diversification

The 3 months correlation between IShares and Northern is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 1000 and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and IShares Russell 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 Russell 1000 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 Russell i.e., IShares Russell and Northern Lights go up and down completely randomly.

Pair Corralation between IShares Russell and Northern Lights

Considering the 90-day investment horizon iShares Russell 1000 is expected to generate 1.54 times more return on investment than Northern Lights. However, IShares Russell is 1.54 times more volatile than Northern Lights. It trades about 0.12 of its potential returns per unit of risk. Northern Lights is currently generating about 0.12 per unit of risk. If you would invest  36,492  in iShares Russell 1000 on August 30, 2024 and sell it today you would earn a total of  3,042  from holding iShares Russell 1000 or generate 8.34% return on investment over 90 days.

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

iShares Russell 1000  vs.  Northern Lights

iShares Russell 1000

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, IShares Russell may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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. In spite of rather sound fundamental indicators, Northern Lights is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Russell and Northern Lights

The main advantage of trading using opposite IShares Russell and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Russell 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 Russell 1000 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.