Correlation Between Black Hills and Northwest Natural

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

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

Diversification Opportunities for Black Hills and Northwest Natural

0.92

Correlation Coefficient

Black Hills  Northwest Natural

Almost no diversification

The 3 months correlation between Black and Northwest is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Northwest Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Natural Gas and Black Hills 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 Black Hills are associated (or correlated) with Northwest Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Natural Gas has no effect on the direction of Black Hills i.e., Black Hills and Northwest Natural go up and down completely randomly.

Pair Corralation between Black Hills and Northwest Natural

Considering the 90-day investment horizon Black Hills is expected to generate 2.19 times less return on investment than Northwest Natural. In addition to that, Black Hills is 1.03 times more volatile than Northwest Natural Gas. It trades about 0.06 of its total potential returns per unit of risk. Northwest Natural Gas is currently generating about 0.12 per unit of volatility. If you would invest  3,889  in Northwest Natural Gas on December 30, 2024 and sell it today you would earn a total of  374.00  from holding Northwest Natural Gas or generate 9.62% return on investment over 90 days.

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

Black Hills  vs.  Northwest Natural Gas

Black Hills

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Northwest Natural Gas

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Natural Gas are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Northwest Natural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Black Hills and Northwest Natural

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

The idea behind Black Hills and Northwest Natural Gas 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.