Correlation Between Companhia Paranaense and NorthWestern

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

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

Diversification Opportunities for Companhia Paranaense and NorthWestern

0.37

Correlation Coefficient

Companhia Paranaense  NorthWestern

Weak diversification

The 3 months correlation between Companhia and NorthWestern is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Paranaense de and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and Companhia Paranaense 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 Companhia Paranaense 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 Companhia Paranaense i.e., Companhia Paranaense and NorthWestern go up and down completely randomly.

Pair Corralation between Companhia Paranaense and NorthWestern

Considering the 90-day investment horizon Companhia Paranaense de is expected to generate 1.56 times more return on investment than NorthWestern. However, Companhia Paranaense is 1.56 times more volatile than NorthWestern. It trades about 0.1 of its potential returns per unit of risk. NorthWestern is currently generating about 0.0 per unit of risk. If you would invest  632.00  in Companhia Paranaense de on November 28, 2024 and sell it today you would earn a total of  75.50  from holding Companhia Paranaense de or generate 11.95% return on investment over 90 days.

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

Companhia Paranaense de  vs.  NorthWestern

Companhia Paranaense

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Paranaense de are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting essential indicators, Companhia Paranaense reported solid returns over the last few months and may actually be approaching a breakup point.

NorthWestern

Risk-Adjusted Performance

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Companhia Paranaense and NorthWestern

The main advantage of trading using opposite Companhia Paranaense and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia Paranaense 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 Companhia Paranaense 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.