Correlation Between Northwest Pipe and Transcat

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

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

Diversification Opportunities for Northwest Pipe and Transcat

-0.71

Correlation Coefficient

Northwest Pipe  Transcat

Pay attention - limited upside

The 3 months correlation between Northwest and Transcat is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Pipe and Transcat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcat 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 Transcat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcat has no effect on the direction of Northwest Pipe i.e., Northwest Pipe and Transcat go up and down completely randomly.

Pair Corralation between Northwest Pipe and Transcat

Given the investment horizon of 90 days Northwest Pipe is expected to generate 0.73 times more return on investment than Transcat. However, Northwest Pipe is 1.37 times less risky than Transcat. It trades about 0.17 of its potential returns per unit of risk. Transcat is currently generating about -0.05 per unit of risk. If you would invest  4,269  in Northwest Pipe on September 14, 2024 and sell it today you would earn a total of  1,091  from holding Northwest Pipe or generate 25.56% return on investment over 90 days.

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

Northwest Pipe  vs.  Transcat

Northwest Pipe

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Pipe are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Northwest Pipe showed solid returns over the last few months and may actually be approaching a breakup point.

Transcat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transcat 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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Northwest Pipe and Transcat

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

The idea behind Northwest Pipe and Transcat 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.