Correlation Between Northern Lights and VanEck Biotech

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

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

Diversification Opportunities for Northern Lights and VanEck Biotech

0.14

Correlation Coefficient

Northern Lights  VanEck Biotech

Average diversification

The 3 months correlation between Northern and VanEck is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and VanEck Biotech ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Biotech ETF 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 VanEck Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Biotech ETF has no effect on the direction of Northern Lights i.e., Northern Lights and VanEck Biotech go up and down completely randomly.

Pair Corralation between Northern Lights and VanEck Biotech

Given the investment horizon of 90 days Northern Lights is expected to generate 0.74 times more return on investment than VanEck Biotech. However, Northern Lights is 1.35 times less risky than VanEck Biotech. It trades about -0.2 of its potential returns per unit of risk. VanEck Biotech ETF is currently generating about -0.28 per unit of risk. If you would invest  2,887  in Northern Lights on January 30, 2024 and sell it today you would lose (94.00) from holding Northern Lights or give up 3.26% of portfolio value over 90 days.

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

Northern Lights  vs.  VanEck Biotech ETF

Northern Lights

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Northern Lights is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

VanEck Biotech ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Biotech ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Etf's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with Northern Lights and VanEck Biotech

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

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