Correlation Between Otter Tail and NorthWestern

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

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

Diversification Opportunities for Otter Tail and NorthWestern

0.77

Correlation Coefficient

Otter Tail  NorthWestern

Poor diversification

The 3 months correlation between Otter and NorthWestern is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Otter Tail and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and Otter Tail 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 Otter Tail are associated (or correlated) with NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of Otter Tail i.e., Otter Tail and NorthWestern go up and down completely randomly.

Pair Corralation between Otter Tail and NorthWestern

Given the investment horizon of 90 days Otter Tail is expected to generate 1.24 times more return on investment than NorthWestern. However, Otter Tail is 1.24 times more volatile than NorthWestern. It trades about 0.09 of its potential returns per unit of risk. NorthWestern is currently generating about 0.09 per unit of risk. If you would invest  7,410  in Otter Tail on December 30, 2024 and sell it today you would earn a total of  663.00  from holding Otter Tail or generate 8.95% return on investment over 90 days.

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

Otter Tail  vs.  NorthWestern

Otter Tail

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Otter Tail are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Otter Tail may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NorthWestern

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NorthWestern are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NorthWestern may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Otter Tail and NorthWestern

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

The idea behind Otter Tail and NorthWestern 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.