Correlation Between Northland Power and EDP Renovveis
Can any of the company-specific risk be diversified away by investing in both Northland Power and EDP Renovveis 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 Northland Power and EDP Renovveis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northland Power and EDP Renovveis SA, you can compare the effects of market volatilities on Northland Power and EDP Renovveis 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 Northland Power with a short position of EDP Renovveis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northland Power and EDP Renovveis.
Diversification Opportunities for Northland Power and EDP Renovveis
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northland and EDP is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and EDP Renovveis SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovveis SA and Northland Power 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 Northland Power are associated (or correlated) with EDP Renovveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovveis SA has no effect on the direction of Northland Power i.e., Northland Power and EDP Renovveis go up and down completely randomly.
Pair Corralation between Northland Power and EDP Renovveis
Assuming the 90 days horizon Northland Power is expected to generate 1.17 times more return on investment than EDP Renovveis. However, Northland Power is 1.17 times more volatile than EDP Renovveis SA. It trades about -0.05 of its potential returns per unit of risk. EDP Renovveis SA is currently generating about -0.11 per unit of risk. If you would invest 1,522 in Northland Power on September 26, 2024 and sell it today you would lose (278.00) from holding Northland Power or give up 18.27% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northland Power vs. EDP Renovveis SA
Performance |
| Timeline |
| Northland Power |
| EDP Renovveis SA |
Northland Power and EDP Renovveis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northland Power and EDP Renovveis
The main advantage of trading using opposite Northland Power and EDP Renovveis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northland Power position performs unexpectedly, EDP Renovveis 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 EDP Renovveis will offset losses from the drop in EDP Renovveis' long position.| Northland Power vs. Orsted AS | Northland Power vs. EDP Renovveis SA | Northland Power vs. CGN Power Co | Northland Power vs. Huaneng Power International |
| EDP Renovveis vs. Orsted AS | EDP Renovveis vs. CGN Power Co | EDP Renovveis vs. Huaneng Power International | EDP Renovveis vs. Power Assets Holdings |
Check out your portfolio center.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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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