Correlation Between Northern Lights and WisdomTree Inflation

Can any of the company-specific risk be diversified away by investing in both Northern Lights and WisdomTree Inflation 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 Inflation 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 Inflation Plus, you can compare the effects of market volatilities on Northern Lights and WisdomTree Inflation 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 Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and WisdomTree Inflation.

Diversification Opportunities for Northern Lights and WisdomTree Inflation

0.32

Correlation Coefficient

Northern Lights  WisdomTree Inflation

Weak diversification

The 3 months correlation between Northern and WisdomTree is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and WisdomTree Inflation Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Inflation Plus 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 Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Inflation Plus has no effect on the direction of Northern Lights i.e., Northern Lights and WisdomTree Inflation go up and down completely randomly.

Pair Corralation between Northern Lights and WisdomTree Inflation

Given the investment horizon of 90 days Northern Lights is expected to generate 0.62 times more return on investment than WisdomTree Inflation. However, Northern Lights is 1.61 times less risky than WisdomTree Inflation. It trades about 0.13 of its potential returns per unit of risk. WisdomTree Inflation Plus is currently generating about 0.01 per unit of risk. If you would invest  2,914  in Northern Lights on May 18, 2025 and sell it today you would earn a total of  97.00  from holding Northern Lights or generate 3.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	66.13%
Values	Daily Returns

Northern Lights  vs.  WisdomTree Inflation Plus

Northern Lights

Risk-Adjusted Performance

Fair

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

WisdomTree Inflation Plus

Risk-Adjusted Performance

Weakest

Over the last 90 days WisdomTree Inflation Plus has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, WisdomTree Inflation is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Northern Lights and WisdomTree Inflation

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

The idea behind Northern Lights and WisdomTree Inflation Plus 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 Transaction History module to view history of all your transactions and understand their impact on performance.