Correlation Between Transcat and Northwest Pipe

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

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

Diversification Opportunities for Transcat and Northwest Pipe

-0.71

Correlation Coefficient

Transcat  Northwest Pipe

Pay attention - limited upside

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

Pair Corralation between Transcat and Northwest Pipe

Given the investment horizon of 90 days Transcat is expected to generate 4.92 times less return on investment than Northwest Pipe. In addition to that, Transcat is 1.31 times more volatile than Northwest Pipe. It trades about 0.02 of its total potential returns per unit of risk. Northwest Pipe is currently generating about 0.13 per unit of volatility. If you would invest  2,888  in Northwest Pipe on September 13, 2024 and sell it today you would earn a total of  2,494  from holding Northwest Pipe or generate 86.36% return on investment over 90 days.

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

Transcat  vs.  Northwest Pipe

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.

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.

Pair Trading with Transcat and Northwest Pipe

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

The idea behind Transcat and Northwest Pipe 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.