Correlation Between Northern Lights and Via Renewables

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

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

Diversification Opportunities for Northern Lights and Via Renewables

0.5

Correlation Coefficient

Northern Lights  Via Renewables

Very weak diversification

The 3 months correlation between Northern and Via is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Via Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Via Renewables 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 Via Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Via Renewables has no effect on the direction of Northern Lights i.e., Northern Lights and Via Renewables go up and down completely randomly.

Pair Corralation between Northern Lights and Via Renewables

Given the investment horizon of 90 days Northern Lights is expected to generate 1.27 times less return on investment than Via Renewables. But when comparing it to its historical volatility, Northern Lights is 2.43 times less risky than Via Renewables. It trades about 0.06 of its potential returns per unit of risk. Via Renewables is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,223  in Via Renewables on September 22, 2024 and sell it today you would earn a total of  112.00  from holding Via Renewables or generate 5.04% return on investment over 90 days.

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

Northern Lights  vs.  Via Renewables

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.

Via Renewables

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Via Renewables are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Via Renewables may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Northern Lights and Via Renewables

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

The idea behind Northern Lights and Via Renewables 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.