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 MidCap, 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

0.95

Correlation Coefficient

Northern Lights  Invesco SP

Almost no diversification

The 3 months correlation between Northern and Invesco is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap 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 MidCap 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 1.11 times less return on investment than Invesco SP. But when comparing it to its historical volatility, Northern Lights is 1.46 times less risky than Invesco SP. It trades about 0.11 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,892  in Invesco SP MidCap on September 12, 2024 and sell it today you would earn a total of  2,734  from holding Invesco SP MidCap or generate 34.64% return on investment over 90 days.

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

Northern Lights  vs.  Invesco SP MidCap

Northern Lights

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 10 (%) 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.

Invesco SP MidCap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 MidCap 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.