Correlation Between Northwest Pipe and Proto Labs

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

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

Diversification Opportunities for Northwest Pipe and Proto Labs

0.83

Correlation Coefficient

Northwest Pipe  Proto Labs

Very poor diversification

The 3 months correlation between Northwest and Proto is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Pipe and Proto Labs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Proto Labs 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 Proto Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Proto Labs has no effect on the direction of Northwest Pipe i.e., Northwest Pipe and Proto Labs go up and down completely randomly.

Pair Corralation between Northwest Pipe and Proto Labs

Given the investment horizon of 90 days Northwest Pipe is expected to under-perform the Proto Labs. In addition to that, Northwest Pipe is 1.17 times more volatile than Proto Labs. It trades about -0.07 of its total potential returns per unit of risk. Proto Labs is currently generating about -0.06 per unit of volatility. If you would invest  3,963  in Proto Labs on December 21, 2024 and sell it today you would lose (325.00) from holding Proto Labs or give up 8.2% of portfolio value over 90 days.

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

Northwest Pipe  vs.  Proto Labs

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 latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Proto Labs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Proto Labs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Northwest Pipe and Proto Labs

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

The idea behind Northwest Pipe and Proto Labs 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.