Correlation Between Northern Lights and IShares MSCI
Can any of the company-specific risk be diversified away by investing in both Northern Lights and IShares MSCI 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 IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and iShares MSCI USA, you can compare the effects of market volatilities on Northern Lights and IShares MSCI 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 IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and IShares MSCI.
Diversification Opportunities for Northern Lights and IShares MSCI
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA 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 IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of Northern Lights i.e., Northern Lights and IShares MSCI go up and down completely randomly.
Pair Corralation between Northern Lights and IShares MSCI
Given the investment horizon of 90 days Northern Lights is expected to generate 4.73 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, Northern Lights is 1.71 times less risky than IShares MSCI. It trades about 0.02 of its potential returns per unit of risk. iShares MSCI USA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 7,253 in iShares MSCI USA on September 1, 2025 and sell it today you would earn a total of 279.00 from holding iShares MSCI USA or generate 3.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. iShares MSCI USA
Performance |
| Timeline |
| Northern Lights |
| iShares MSCI USA |
Northern Lights and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and IShares MSCI
The main advantage of trading using opposite Northern Lights and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, IShares MSCI 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 IShares MSCI will offset losses from the drop in IShares MSCI's long position.| Northern Lights vs. Vanguard Growth Index | Northern Lights vs. iShares Russell 1000 | Northern Lights vs. SPDR Portfolio SP | Northern Lights vs. Vanguard Mega Cap |
| IShares MSCI vs. FT Vest Equity | IShares MSCI vs. Northern Lights | IShares MSCI vs. Diamond Hill Funds | IShares MSCI vs. Dimensional International High |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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