Correlation Between Northern Lights and Tidal Trust

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

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

Diversification Opportunities for Northern Lights and Tidal Trust

0.33

Correlation Coefficient

Northern Lights  Tidal Trust

Weak diversification

The 3 months correlation between Northern and Tidal is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Tidal Trust II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidal Trust II 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 Tidal Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidal Trust II has no effect on the direction of Northern Lights i.e., Northern Lights and Tidal Trust go up and down completely randomly.

Pair Corralation between Northern Lights and Tidal Trust

Given the investment horizon of 90 days Northern Lights is expected to under-perform the Tidal Trust. But the etf apears to be less risky and, when comparing its historical volatility, Northern Lights is 3.97 times less risky than Tidal Trust. The etf trades about -0.11 of its potential returns per unit of risk. The Tidal Trust II is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,997  in Tidal Trust II on September 17, 2024 and sell it today you would earn a total of  46.00  from holding Tidal Trust II or generate 2.3% return on investment over 90 days.

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

Northern Lights  vs.  Tidal Trust II

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 very healthy basic indicators, Northern Lights is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Tidal Trust II

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tidal Trust II are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Tidal Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Northern Lights and Tidal Trust

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

The idea behind Northern Lights and Tidal Trust II 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.