Correlation Between Avista and NorthWestern

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

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

Diversification Opportunities for Avista and NorthWestern

0.31

Correlation Coefficient

Avista  NorthWestern

Weak diversification

The 3 months correlation between Avista and NorthWestern is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Avista and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and Avista 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 Avista are associated (or correlated) with NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of Avista i.e., Avista and NorthWestern go up and down completely randomly.

Pair Corralation between Avista and NorthWestern

Considering the 90-day investment horizon Avista is expected to generate 1.66 times less return on investment than NorthWestern. But when comparing it to its historical volatility, Avista is 1.08 times less risky than NorthWestern. It trades about 0.02 of its potential returns per unit of risk. NorthWestern is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,375  in NorthWestern on August 30, 2024 and sell it today you would earn a total of  97.00  from holding NorthWestern or generate 1.8% return on investment over 90 days.

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

Avista  vs.  NorthWestern

Avista

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avista are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avista is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NorthWestern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NorthWestern are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, NorthWestern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Avista and NorthWestern

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

The idea behind Avista and NorthWestern 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.