Correlation Between Northern Lights and Howard Hughes

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

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

Diversification Opportunities for Northern Lights and Howard Hughes

0.89

Correlation Coefficient

Northern Lights  Howard Hughes

Very poor diversification

The 3 months correlation between Northern and Howard is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Howard Hughes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howard Hughes 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 Howard Hughes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howard Hughes has no effect on the direction of Northern Lights i.e., Northern Lights and Howard Hughes go up and down completely randomly.

Pair Corralation between Northern Lights and Howard Hughes

Given the investment horizon of 90 days Northern Lights is expected to generate 0.51 times more return on investment than Howard Hughes. However, Northern Lights is 1.97 times less risky than Howard Hughes. It trades about -0.11 of its potential returns per unit of risk. Howard Hughes is currently generating about -0.14 per unit of risk. If you would invest  3,510  in Northern Lights on September 20, 2024 and sell it today you would lose (71.00) from holding Northern Lights or give up 2.02% 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.  Howard Hughes

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.

Howard Hughes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Howard Hughes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Howard Hughes is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Northern Lights and Howard Hughes

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

The idea behind Northern Lights and Howard Hughes 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.