Correlation Between Northern Technologies and Innospec

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

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

Diversification Opportunities for Northern Technologies and Innospec

0.46

Correlation Coefficient

Northern Technologies  Innospec

Very weak diversification

The 3 months correlation between Northern and Innospec is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Northern Technologies and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec and Northern Technologies 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 Northern Technologies are associated (or correlated) with Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Northern Technologies i.e., Northern Technologies and Innospec go up and down completely randomly.

Pair Corralation between Northern Technologies and Innospec

Given the investment horizon of 90 days Northern Technologies is expected to under-perform the Innospec. In addition to that, Northern Technologies is 1.34 times more volatile than Innospec. It trades about -0.15 of its total potential returns per unit of risk. Innospec is currently generating about -0.12 per unit of volatility. If you would invest  11,861  in Innospec on November 28, 2024 and sell it today you would lose (1,423) from holding Innospec or give up 12.0% of portfolio value over 90 days.

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

Northern Technologies  vs.  Innospec

Northern Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Innospec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innospec has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Northern Technologies and Innospec

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

The idea behind Northern Technologies and Innospec 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.