Correlation Between Energy Of and NorthWestern

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

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

Diversification Opportunities for Energy Of and NorthWestern

0.2

Correlation Coefficient

Energy Of  NorthWestern

Modest diversification

The 3 months correlation between Energy and NorthWestern is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Energy of Minas and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and Energy Of 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 Energy of Minas 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 Energy Of i.e., Energy Of and NorthWestern go up and down completely randomly.

Pair Corralation between Energy Of and NorthWestern

Assuming the 90 days horizon Energy Of is expected to generate 3.3 times less return on investment than NorthWestern. In addition to that, Energy Of is 1.54 times more volatile than NorthWestern. It trades about 0.01 of its total potential returns per unit of risk. NorthWestern is currently generating about 0.05 per unit of volatility. If you would invest  5,391  in NorthWestern on August 31, 2024 and sell it today you would earn a total of  81.00  from holding NorthWestern or generate 1.5% return on investment over 90 days.

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

Energy of Minas  vs.  NorthWestern

Energy of Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy of Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Energy Of is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Energy Of and NorthWestern

The main advantage of trading using opposite Energy Of and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Of 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 Energy of Minas 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..