Correlation Between Northwest Pipe and Allegheny Technologies

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

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

Diversification Opportunities for Northwest Pipe and Allegheny Technologies

0.73

Correlation Coefficient

Northwest Pipe  Allegheny Technologies

Poor diversification

The 3 months correlation between Northwest and Allegheny is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Pipe and Allegheny Technologies Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegheny Technologies and Northwest Pipe 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 Northwest Pipe are associated (or correlated) with Allegheny Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegheny Technologies has no effect on the direction of Northwest Pipe i.e., Northwest Pipe and Allegheny Technologies go up and down completely randomly.

Pair Corralation between Northwest Pipe and Allegheny Technologies

Given the investment horizon of 90 days Northwest Pipe is expected to under-perform the Allegheny Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Northwest Pipe is 1.04 times less risky than Allegheny Technologies. The stock trades about -0.08 of its potential returns per unit of risk. The Allegheny Technologies Incorporated is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,545  in Allegheny Technologies Incorporated on December 27, 2024 and sell it today you would lose (270.00) from holding Allegheny Technologies Incorporated or give up 4.87% of portfolio value over 90 days.

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

Northwest Pipe  vs.  Allegheny Technologies Incorpo

Northwest Pipe

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northwest Pipe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Allegheny Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allegheny Technologies Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Allegheny Technologies is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Northwest Pipe and Allegheny Technologies

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

The idea behind Northwest Pipe and Allegheny Technologies Incorporated 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.