Correlation Between Gulf Island and Northwest Pipe

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

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

Diversification Opportunities for Gulf Island and Northwest Pipe

0.77

Correlation Coefficient

Gulf Island  Northwest Pipe

Poor diversification

The 3 months correlation between Gulf and Northwest is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Island Fabrication and Northwest Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Pipe and Gulf Island 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 Gulf Island Fabrication are associated (or correlated) with Northwest Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Pipe has no effect on the direction of Gulf Island i.e., Gulf Island and Northwest Pipe go up and down completely randomly.

Pair Corralation between Gulf Island and Northwest Pipe

Given the investment horizon of 90 days Gulf Island Fabrication is expected to generate 0.86 times more return on investment than Northwest Pipe. However, Gulf Island Fabrication is 1.16 times less risky than Northwest Pipe. It trades about -0.02 of its potential returns per unit of risk. Northwest Pipe is currently generating about -0.09 per unit of risk. If you would invest  676.00  in Gulf Island Fabrication on December 29, 2024 and sell it today you would lose (23.00) from holding Gulf Island Fabrication or give up 3.4% of portfolio value over 90 days.

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

Gulf Island Fabrication  vs.  Northwest Pipe

Gulf Island Fabrication

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gulf Island Fabrication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Gulf Island is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Northwest Pipe

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Gulf Island and Northwest Pipe

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

The idea behind Gulf Island Fabrication and Northwest Pipe 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.