Correlation Between ADF and Northwest Pipe
Can any of the company-specific risk be diversified away by investing in both ADF 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 ADF and Northwest Pipe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ADF Group and Northwest Pipe, you can compare the effects of market volatilities on ADF 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 ADF with a short position of Northwest Pipe. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADF and Northwest Pipe.
Diversification Opportunities for ADF and Northwest Pipe
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between ADF and Northwest is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and Northwest Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Pipe and ADF 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 ADF Group 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 ADF i.e., ADF and Northwest Pipe go up and down completely randomly.
Pair Corralation between ADF and Northwest Pipe
Assuming the 90 days horizon ADF Group is expected to under-perform the Northwest Pipe. In addition to that, ADF is 1.5 times more volatile than Northwest Pipe. It trades about -0.05 of its total potential returns per unit of risk. Northwest Pipe is currently generating about 0.18 per unit of volatility. If you would invest 4,169 in Northwest Pipe on September 12, 2024 and sell it today you would earn a total of 1,213 from holding Northwest Pipe or generate 29.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ADF Group vs. Northwest Pipe
Performance |
| Timeline |
| ADF Group |
| Northwest Pipe |
ADF and Northwest Pipe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ADF and Northwest Pipe
The main advantage of trading using opposite ADF and Northwest Pipe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADF 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 ADF Group 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.| Northwest Pipe vs. Insteel Industries | Northwest Pipe vs. Carpenter Technology | Northwest Pipe vs. ESAB Corp | Northwest Pipe vs. Gulf Island Fabrication |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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