Correlation Between Northland Power and Telecom Argentina

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

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

Diversification Opportunities for Northland Power and Telecom Argentina

-0.8

Correlation Coefficient

Northland Power  Telecom Argentina

Pay attention - limited upside

The 3 months correlation between Northland and Telecom is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and Telecom Argentina SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Argentina 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 Telecom Argentina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Argentina has no effect on the direction of Northland Power i.e., Northland Power and Telecom Argentina go up and down completely randomly.

Pair Corralation between Northland Power and Telecom Argentina

Assuming the 90 days horizon Northland Power is expected to under-perform the Telecom Argentina. But the stock apears to be less risky and, when comparing its historical volatility, Northland Power is 1.8 times less risky than Telecom Argentina. The stock trades about -0.01 of its potential returns per unit of risk. The Telecom Argentina SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,260  in Telecom Argentina SA on October 9, 2024 and sell it today you would earn a total of  70.00  from holding Telecom Argentina SA or generate 5.56% return on investment over 90 days.

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

Northland Power  vs.  Telecom Argentina SA

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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Telecom Argentina

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telecom Argentina SA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Telecom Argentina reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northland Power and Telecom Argentina

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

The idea behind Northland Power and Telecom Argentina SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.