Correlation Between WisdomTree Inflation and Northern Lights

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

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

Diversification Opportunities for WisdomTree Inflation and Northern Lights

-0.3

Correlation Coefficient

WisdomTree Inflation  Northern Lights

Very good diversification

The 3 months correlation between WisdomTree and Northern is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Inflation Plus and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and WisdomTree Inflation 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 WisdomTree Inflation Plus 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 WisdomTree Inflation i.e., WisdomTree Inflation and Northern Lights go up and down completely randomly.

Pair Corralation between WisdomTree Inflation and Northern Lights

Given the investment horizon of 90 days WisdomTree Inflation is expected to generate 1.48 times less return on investment than Northern Lights. But when comparing it to its historical volatility, WisdomTree Inflation Plus is 1.28 times less risky than Northern Lights. It trades about 0.24 of its potential returns per unit of risk. Northern Lights is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,318  in Northern Lights on May 1, 2025 and sell it today you would earn a total of  328.00  from holding Northern Lights or generate 14.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	45.9%
Values	Daily Returns

WisdomTree Inflation Plus  vs.  Northern Lights

WisdomTree Inflation Plus

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Inflation Plus are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward indicators, WisdomTree Inflation may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Northern Lights

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, Northern Lights reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WisdomTree Inflation and Northern Lights

The main advantage of trading using opposite WisdomTree Inflation and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Inflation 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 WisdomTree Inflation Plus 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.