Correlation Between Retail Estates and NORTHEAST UTILITIES

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

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

Diversification Opportunities for Retail Estates and NORTHEAST UTILITIES

0.65

Correlation Coefficient

Retail Estates  NORTHEAST UTILITIES

Poor diversification

The 3 months correlation between Retail and NORTHEAST is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Retail Estates NV and NORTHEAST UTILITIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHEAST UTILITIES and Retail Estates 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 Retail Estates NV are associated (or correlated) with NORTHEAST UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHEAST UTILITIES has no effect on the direction of Retail Estates i.e., Retail Estates and NORTHEAST UTILITIES go up and down completely randomly.

Pair Corralation between Retail Estates and NORTHEAST UTILITIES

Assuming the 90 days horizon Retail Estates NV is expected to under-perform the NORTHEAST UTILITIES. But the stock apears to be less risky and, when comparing its historical volatility, Retail Estates NV is 1.36 times less risky than NORTHEAST UTILITIES. The stock trades about -0.17 of its potential returns per unit of risk. The NORTHEAST UTILITIES is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  6,022  in NORTHEAST UTILITIES on October 25, 2024 and sell it today you would lose (622.00) from holding NORTHEAST UTILITIES or give up 10.33% of portfolio value over 90 days.

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

Retail Estates NV  vs.  NORTHEAST UTILITIES

Retail Estates NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Retail Estates NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

NORTHEAST UTILITIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORTHEAST UTILITIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Retail Estates and NORTHEAST UTILITIES

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

The idea behind Retail Estates NV and NORTHEAST UTILITIES 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.