Correlation Between Northland Power and WIMFARM SA

Can any of the company-specific risk be diversified away by investing in both Northland Power and WIMFARM SA 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 Northland Power and WIMFARM SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northland Power and WIMFARM SA EO, you can compare the effects of market volatilities on Northland Power and WIMFARM SA 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 Northland Power with a short position of WIMFARM SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northland Power and WIMFARM SA.

Diversification Opportunities for Northland Power and WIMFARM SA

0.5

Correlation Coefficient

Northland Power  WIMFARM SA

Very weak diversification

The 3 months correlation between Northland and WIMFARM is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and WIMFARM SA EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WIMFARM SA EO and Northland Power 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 Northland Power are associated (or correlated) with WIMFARM SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WIMFARM SA EO has no effect on the direction of Northland Power i.e., Northland Power and WIMFARM SA go up and down completely randomly.

Pair Corralation between Northland Power and WIMFARM SA

Assuming the 90 days horizon Northland Power is expected to generate 0.75 times more return on investment than WIMFARM SA. However, Northland Power is 1.32 times less risky than WIMFARM SA. It trades about -0.03 of its potential returns per unit of risk. WIMFARM SA EO is currently generating about -0.06 per unit of risk. If you would invest  2,263  in Northland Power on October 4, 2024 and sell it today you would lose (1,088) from holding Northland Power or give up 48.08% of portfolio value over 90 days.

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

Northland Power  vs.  WIMFARM SA EO

Northland Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northland Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

WIMFARM SA EO

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WIMFARM SA EO are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WIMFARM SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northland Power and WIMFARM SA

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

The idea behind Northland Power and WIMFARM SA EO 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.