Correlation Between NorthWestern and Allete
Can any of the company-specific risk be diversified away by investing in both NorthWestern and Allete 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 NorthWestern and Allete into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NorthWestern and Allete Inc, you can compare the effects of market volatilities on NorthWestern and Allete 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 NorthWestern with a short position of Allete. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorthWestern and Allete.
Diversification Opportunities for NorthWestern and Allete
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between NorthWestern and Allete is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc and NorthWestern 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 NorthWestern are associated (or correlated) with Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of NorthWestern i.e., NorthWestern and Allete go up and down completely randomly.
Pair Corralation between NorthWestern and Allete
Considering the 90-day investment horizon NorthWestern is expected to generate 1.75 times less return on investment than Allete. In addition to that, NorthWestern is 1.06 times more volatile than Allete Inc. It trades about 0.02 of its total potential returns per unit of risk. Allete Inc is currently generating about 0.04 per unit of volatility. If you would invest 5,587 in Allete Inc on August 27, 2024 and sell it today you would earn a total of 906.00 from holding Allete Inc or generate 16.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NorthWestern vs. Allete Inc
Performance |
| Timeline |
| NorthWestern |
| Allete Inc |
NorthWestern and Allete Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NorthWestern and Allete
The main advantage of trading using opposite NorthWestern and Allete positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorthWestern position performs unexpectedly, Allete 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 Allete will offset losses from the drop in Allete's long position.| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
| Allete vs. Avista | Allete vs. Black Hills | Allete vs. Montauk Renewables | Allete vs. Companhia Paranaense de |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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