Correlation Between EDP Energias and NorthWestern

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

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

Diversification Opportunities for EDP Energias and NorthWestern

0.68

Correlation Coefficient

EDP Energias  NorthWestern

Poor diversification

The 3 months correlation between EDP and NorthWestern is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias de and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and EDP Energias 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 EDP Energias de 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 EDP Energias i.e., EDP Energias and NorthWestern go up and down completely randomly.

Pair Corralation between EDP Energias and NorthWestern

Assuming the 90 days horizon EDP Energias de is expected to under-perform the NorthWestern. In addition to that, EDP Energias is 1.29 times more volatile than NorthWestern. It trades about -0.07 of its total potential returns per unit of risk. NorthWestern is currently generating about 0.07 per unit of volatility. If you would invest  4,800  in NorthWestern on September 29, 2024 and sell it today you would earn a total of  545.00  from holding NorthWestern or generate 11.35% return on investment over 90 days.

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

EDP Energias de  vs.  NorthWestern

EDP Energias de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

NorthWestern

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with EDP Energias and NorthWestern

The main advantage of trading using opposite EDP Energias and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EDP Energias 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 EDP Energias de 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.