Correlation Between Northern Lights and ISEM

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

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

Diversification Opportunities for Northern Lights and ISEM

-0.39

Correlation Coefficient

Northern Lights  ISEM

Very good diversification

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

Pair Corralation between Northern Lights and ISEM

If you would invest  3,442  in Northern Lights on September 15, 2024 and sell it today you would earn a total of  119.00  from holding Northern Lights or generate 3.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Northern Lights  vs.  ISEM

Northern Lights

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 6 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

ISEM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ISEM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, ISEM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Northern Lights and ISEM

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

The idea behind Northern Lights and ISEM 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.