Correlation Between Iron Road and NiSource

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

By analyzing existing cross correlation between Iron Road Limited and NiSource, you can compare the effects of market volatilities on Iron Road and NiSource 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 Iron Road with a short position of NiSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and NiSource.

Diversification Opportunities for Iron Road and NiSource

-0.42

Correlation Coefficient

Iron Road  NiSource

Very good diversification

The 3 months correlation between Iron and NiSource is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road Limited and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource and Iron Road 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 Iron Road Limited are associated (or correlated) with NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of Iron Road i.e., Iron Road and NiSource go up and down completely randomly.

Pair Corralation between Iron Road and NiSource

Assuming the 90 days horizon Iron Road is expected to generate 7.86 times less return on investment than NiSource. In addition to that, Iron Road is 7.15 times more volatile than NiSource. It trades about 0.0 of its total potential returns per unit of risk. NiSource is currently generating about 0.21 per unit of volatility. If you would invest  3,035  in NiSource on September 25, 2024 and sell it today you would earn a total of  445.00  from holding NiSource or generate 14.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Iron Road Limited  vs.  NiSource

Iron Road Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Iron Road is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NiSource

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NiSource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iron Road and NiSource

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

The idea behind Iron Road Limited and NiSource 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.