Correlation Between NorthWestern and Atco

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

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

Diversification Opportunities for NorthWestern and Atco

0.57

Correlation Coefficient

NorthWestern  Atco

Very weak diversification

The 3 months correlation between NorthWestern and Atco is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and Atco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atco and NorthWestern 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 NorthWestern are associated (or correlated) with Atco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atco has no effect on the direction of NorthWestern i.e., NorthWestern and Atco go up and down completely randomly.

Pair Corralation between NorthWestern and Atco

Considering the 90-day investment horizon NorthWestern is expected to generate 1.6 times more return on investment than Atco. However, NorthWestern is 1.6 times more volatile than Atco. It trades about 0.06 of its potential returns per unit of risk. Atco is currently generating about -0.23 per unit of risk. If you would invest  5,234  in NorthWestern on October 8, 2024 and sell it today you would earn a total of  80.00  from holding NorthWestern or generate 1.53% return on investment over 90 days.

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

NorthWestern  vs.  Atco

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.

Atco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Atco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Atco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NorthWestern and Atco

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

The idea behind NorthWestern and Atco 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.