Correlation Between NorthWestern and ENEL Societa

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

By analyzing existing cross correlation between NorthWestern and ENEL Societa per, you can compare the effects of market volatilities on NorthWestern and ENEL Societa 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 ENEL Societa. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorthWestern and ENEL Societa.

Diversification Opportunities for NorthWestern and ENEL Societa

0.2

Correlation Coefficient

NorthWestern  ENEL Societa

Modest diversification

The 3 months correlation between NorthWestern and ENEL is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and ENEL Societa per in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENEL Societa per 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 ENEL Societa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENEL Societa per has no effect on the direction of NorthWestern i.e., NorthWestern and ENEL Societa go up and down completely randomly.

Pair Corralation between NorthWestern and ENEL Societa

Considering the 90-day investment horizon NorthWestern is expected to generate 1.08 times more return on investment than ENEL Societa. However, NorthWestern is 1.08 times more volatile than ENEL Societa per. It trades about 0.04 of its potential returns per unit of risk. ENEL Societa per is currently generating about -0.08 per unit of risk. If you would invest  5,340  in NorthWestern on August 31, 2024 and sell it today you would earn a total of  132.00  from holding NorthWestern or generate 2.47% return on investment over 90 days.

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

NorthWestern  vs.  ENEL Societa per

NorthWestern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NorthWestern are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

ENEL Societa per

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ENEL Societa per has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ENEL Societa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NorthWestern and ENEL Societa

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

The idea behind NorthWestern and ENEL Societa per 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.