Correlation Between Inspire SmallMid and Northern Lights

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

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

Diversification Opportunities for Inspire SmallMid and Northern Lights

0.76

Correlation Coefficient

Inspire SmallMid  Northern Lights

Poor diversification

The 3 months correlation between Inspire and Northern is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Inspire SmallMid Cap and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Inspire SmallMid 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 Inspire SmallMid Cap are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Inspire SmallMid i.e., Inspire SmallMid and Northern Lights go up and down completely randomly.

Pair Corralation between Inspire SmallMid and Northern Lights

Given the investment horizon of 90 days Inspire SmallMid Cap is expected to generate 3.56 times more return on investment than Northern Lights. However, Inspire SmallMid is 3.56 times more volatile than Northern Lights. It trades about 0.08 of its potential returns per unit of risk. Northern Lights is currently generating about 0.16 per unit of risk. If you would invest  3,316  in Inspire SmallMid Cap on May 4, 2025 and sell it today you would earn a total of  194.00  from holding Inspire SmallMid Cap or generate 5.85% return on investment over 90 days.

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

Inspire SmallMid Cap  vs.  Northern Lights

Inspire SmallMid Cap

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire SmallMid Cap are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Inspire SmallMid is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Northern Lights

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Northern Lights is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Inspire SmallMid and Northern Lights

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

The idea behind Inspire SmallMid Cap and Northern Lights 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.