Correlation Between GreenPower and Northland Power

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

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

Diversification Opportunities for GreenPower and Northland Power

0.87

Correlation Coefficient

GreenPower  Northland Power

Very poor diversification

The 3 months correlation between GreenPower and Northland is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding GreenPower Motor and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and GreenPower 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 GreenPower Motor are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of GreenPower i.e., GreenPower and Northland Power go up and down completely randomly.

Pair Corralation between GreenPower and Northland Power

Assuming the 90 days horizon GreenPower Motor is expected to generate 4.13 times more return on investment than Northland Power. However, GreenPower is 4.13 times more volatile than Northland Power. It trades about 0.06 of its potential returns per unit of risk. Northland Power is currently generating about 0.02 per unit of risk. If you would invest  123.00  in GreenPower Motor on September 3, 2024 and sell it today you would earn a total of  17.00  from holding GreenPower Motor or generate 13.82% return on investment over 90 days.

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

GreenPower Motor  vs.  Northland Power

GreenPower Motor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GreenPower Motor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, GreenPower showed solid returns over the last few months and may actually be approaching a breakup point.

Northland Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Northland Power is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GreenPower and Northland Power

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

The idea behind GreenPower Motor and Northland Power 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.