Correlation Between Gap, and NorthWestern
Can any of the company-specific risk be diversified away by investing in both Gap, 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 Gap, and NorthWestern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Gap, and NorthWestern, you can compare the effects of market volatilities on Gap, 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 Gap, with a short position of NorthWestern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gap, and NorthWestern.
Diversification Opportunities for Gap, and NorthWestern
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Gap, and NorthWestern is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding The Gap, and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and Gap, 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 The Gap, 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 Gap, i.e., Gap, and NorthWestern go up and down completely randomly.
Pair Corralation between Gap, and NorthWestern
Considering the 90-day investment horizon The Gap, is expected to generate 2.87 times more return on investment than NorthWestern. However, Gap, is 2.87 times more volatile than NorthWestern. It trades about 0.05 of its potential returns per unit of risk. NorthWestern is currently generating about 0.02 per unit of risk. If you would invest 1,389 in The Gap, on August 25, 2024 and sell it today you would earn a total of 1,098 from holding The Gap, or generate 79.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Gap, vs. NorthWestern
Performance |
| Timeline |
| Gap, |
| NorthWestern |
Gap, and NorthWestern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gap, and NorthWestern
The main advantage of trading using opposite Gap, and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gap, 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 The Gap, 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.| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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