Correlation Between NorthWestern and Esperion Therapeutics

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Can any of the company-specific risk be diversified away by investing in both NorthWestern and Esperion Therapeutics 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 Esperion Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NorthWestern and Esperion Therapeutics, you can compare the effects of market volatilities on NorthWestern and Esperion Therapeutics 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 Esperion Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorthWestern and Esperion Therapeutics.

Diversification Opportunities for NorthWestern and Esperion Therapeutics

-0.03
  Correlation Coefficient

Good diversification

The 3 months correlation between NorthWestern and Esperion is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and Esperion Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Esperion Therapeutics 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 Esperion Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Esperion Therapeutics has no effect on the direction of NorthWestern i.e., NorthWestern and Esperion Therapeutics go up and down completely randomly.

Pair Corralation between NorthWestern and Esperion Therapeutics

Considering the 90-day investment horizon NorthWestern is expected to generate 11.8 times less return on investment than Esperion Therapeutics. But when comparing it to its historical volatility, NorthWestern is 3.44 times less risky than Esperion Therapeutics. It trades about 0.05 of its potential returns per unit of risk. Esperion Therapeutics is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  213.00  in Esperion Therapeutics on August 31, 2024 and sell it today you would earn a total of  41.00  from holding Esperion Therapeutics or generate 19.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

NorthWestern  vs.  Esperion Therapeutics

 Performance 
       Timeline  
NorthWestern 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in NorthWestern are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, NorthWestern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Esperion Therapeutics 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Esperion Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Esperion Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

NorthWestern and Esperion Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NorthWestern and Esperion Therapeutics

The main advantage of trading using opposite NorthWestern and Esperion Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorthWestern position performs unexpectedly, Esperion Therapeutics 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 Esperion Therapeutics will offset losses from the drop in Esperion Therapeutics' long position.
The idea behind NorthWestern and Esperion Therapeutics 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.
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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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