Correlation Between NORTHEAST UTILITIES and SPORTING

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

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

Diversification Opportunities for NORTHEAST UTILITIES and SPORTING

-0.24

Correlation Coefficient

NORTHEAST UTILITIES  SPORTING

Very good diversification

The 3 months correlation between NORTHEAST and SPORTING is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding NORTHEAST UTILITIES and SPORTING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPORTING and NORTHEAST UTILITIES 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 NORTHEAST UTILITIES are associated (or correlated) with SPORTING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPORTING has no effect on the direction of NORTHEAST UTILITIES i.e., NORTHEAST UTILITIES and SPORTING go up and down completely randomly.

Pair Corralation between NORTHEAST UTILITIES and SPORTING

Assuming the 90 days trading horizon NORTHEAST UTILITIES is expected to generate 5.03 times less return on investment than SPORTING. But when comparing it to its historical volatility, NORTHEAST UTILITIES is 1.26 times less risky than SPORTING. It trades about 0.04 of its potential returns per unit of risk. SPORTING is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  80.00  in SPORTING on December 24, 2024 and sell it today you would earn a total of  16.00  from holding SPORTING or generate 20.0% return on investment over 90 days.

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

NORTHEAST UTILITIES  vs.  SPORTING

NORTHEAST UTILITIES

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NORTHEAST UTILITIES are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking indicators, NORTHEAST UTILITIES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SPORTING

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPORTING are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, SPORTING unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NORTHEAST UTILITIES and SPORTING

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

The idea behind NORTHEAST UTILITIES and SPORTING 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.