Correlation Between Northern Lights and WisdomTree SmallCap

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

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

Diversification Opportunities for Northern Lights and WisdomTree SmallCap

0.58

Correlation Coefficient

Northern Lights  WisdomTree SmallCap

Very weak diversification

The 3 months correlation between Northern and WisdomTree is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and WisdomTree SmallCap Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SmallCap 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 WisdomTree SmallCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SmallCap has no effect on the direction of Northern Lights i.e., Northern Lights and WisdomTree SmallCap go up and down completely randomly.

Pair Corralation between Northern Lights and WisdomTree SmallCap

Given the investment horizon of 90 days Northern Lights is expected to generate 3.55 times less return on investment than WisdomTree SmallCap. But when comparing it to its historical volatility, Northern Lights is 2.78 times less risky than WisdomTree SmallCap. It trades about 0.15 of its potential returns per unit of risk. WisdomTree SmallCap Earnings is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,643  in WisdomTree SmallCap Earnings on April 30, 2025 and sell it today you would earn a total of  672.00  from holding WisdomTree SmallCap Earnings or generate 14.47% 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.  WisdomTree SmallCap Earnings

Northern Lights

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. 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.

WisdomTree SmallCap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Earnings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, WisdomTree SmallCap unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Lights and WisdomTree SmallCap

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

The idea behind Northern Lights and WisdomTree SmallCap Earnings 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.