Correlation Between Northern Technologies and Innospec
Can any of the company-specific risk be diversified away by investing in both Northern Technologies and Innospec 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 Northern Technologies and Innospec into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Technologies and Innospec, you can compare the effects of market volatilities on Northern Technologies and Innospec 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 Northern Technologies with a short position of Innospec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Technologies and Innospec.
Diversification Opportunities for Northern Technologies and Innospec
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and Innospec is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Northern Technologies and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec and Northern Technologies 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 Northern Technologies are associated (or correlated) with Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Northern Technologies i.e., Northern Technologies and Innospec go up and down completely randomly.
Pair Corralation between Northern Technologies and Innospec
Given the investment horizon of 90 days Northern Technologies is expected to generate 1.58 times more return on investment than Innospec. However, Northern Technologies is 1.58 times more volatile than Innospec. It trades about 0.02 of its potential returns per unit of risk. Innospec is currently generating about 0.02 per unit of risk. If you would invest 1,246 in Northern Technologies on August 27, 2024 and sell it today you would earn a total of 153.00 from holding Northern Technologies or generate 12.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Technologies vs. Innospec
Performance |
| Timeline |
| Northern Technologies |
| Innospec |
Northern Technologies and Innospec Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Technologies and Innospec
The main advantage of trading using opposite Northern Technologies and Innospec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Technologies position performs unexpectedly, Innospec 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 Innospec will offset losses from the drop in Innospec's long position.| Northern Technologies vs. Innospec | Northern Technologies vs. H B Fuller | Northern Technologies vs. Quaker Chemical | Northern Technologies vs. Minerals Technologies |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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