Correlation Between Northern Lights and Invesco SP

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

By analyzing existing cross correlation between Northern Lights and Invesco SP 100, you can compare the effects of market volatilities on Northern Lights and Invesco SP 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 Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Invesco SP.

Diversification Opportunities for Northern Lights and Invesco SP

0.83

Correlation Coefficient

Northern Lights  Invesco SP

Very poor diversification

The 3 months correlation between Northern and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Invesco SP 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 100 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 100 has no effect on the direction of Northern Lights i.e., Northern Lights and Invesco SP go up and down completely randomly.

Pair Corralation between Northern Lights and Invesco SP

Given the investment horizon of 90 days Northern Lights is expected to generate 1.22 times more return on investment than Invesco SP. However, Northern Lights is 1.22 times more volatile than Invesco SP 100. It trades about -0.1 of its potential returns per unit of risk. Invesco SP 100 is currently generating about -0.18 per unit of risk. If you would invest  3,566  in Northern Lights on September 26, 2024 and sell it today you would lose (65.00) from holding Northern Lights or give up 1.82% of portfolio value over 90 days.

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

Northern Lights  vs.  Invesco SP 100

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

Invesco SP 100

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 100 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Northern Lights and Invesco SP

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

The idea behind Northern Lights and Invesco SP 100 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.