Correlation Between NorthWestern and NiSource

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

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

Diversification Opportunities for NorthWestern and NiSource

-0.05

Correlation Coefficient

NorthWestern  NiSource

Good diversification

The 3 months correlation between NorthWestern and NiSource is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource 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 NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of NorthWestern i.e., NorthWestern and NiSource go up and down completely randomly.

Pair Corralation between NorthWestern and NiSource

Considering the 90-day investment horizon NorthWestern is expected to generate 7.75 times less return on investment than NiSource. In addition to that, NorthWestern is 1.08 times more volatile than NiSource. It trades about 0.01 of its total potential returns per unit of risk. NiSource is currently generating about 0.07 per unit of volatility. If you would invest  2,519  in NiSource on October 12, 2024 and sell it today you would earn a total of  1,084  from holding NiSource or generate 43.03% return on investment over 90 days.

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

NorthWestern  vs.  NiSource

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 latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NiSource

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, NiSource may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NorthWestern and NiSource

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

The idea behind NorthWestern and NiSource 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.