Correlation Between NiSource and NorthWestern

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

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

Diversification Opportunities for NiSource and NorthWestern

-0.23

Correlation Coefficient

NiSource  NorthWestern

Very good diversification

The 3 months correlation between NiSource and NorthWestern is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding NiSource and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and NiSource 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 NiSource 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 NiSource i.e., NiSource and NorthWestern go up and down completely randomly.

Pair Corralation between NiSource and NorthWestern

Allowing for the 90-day total investment horizon NiSource is expected to under-perform the NorthWestern. But the stock apears to be less risky and, when comparing its historical volatility, NiSource is 1.72 times less risky than NorthWestern. The stock trades about -0.21 of its potential returns per unit of risk. The NorthWestern is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  5,403  in NorthWestern on September 28, 2024 and sell it today you would lose (113.50) from holding NorthWestern or give up 2.1% of portfolio value over 90 days.

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

NiSource  vs.  NorthWestern

NiSource

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward indicators, NiSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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

Pair Trading with NiSource and NorthWestern

The main advantage of trading using opposite NiSource and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NiSource 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 NiSource 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.