Correlation Between NorthWestern and PacifiCorp
Can any of the company-specific risk be diversified away by investing in both NorthWestern and PacifiCorp 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 PacifiCorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NorthWestern and PacifiCorp, you can compare the effects of market volatilities on NorthWestern and PacifiCorp 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 PacifiCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorthWestern and PacifiCorp.
Diversification Opportunities for NorthWestern and PacifiCorp
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between NorthWestern and PacifiCorp is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp 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 PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of NorthWestern i.e., NorthWestern and PacifiCorp go up and down completely randomly.
Pair Corralation between NorthWestern and PacifiCorp
Considering the 90-day investment horizon NorthWestern is expected to generate 20.74 times less return on investment than PacifiCorp. But when comparing it to its historical volatility, NorthWestern is 4.79 times less risky than PacifiCorp. It trades about 0.01 of its potential returns per unit of risk. PacifiCorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 17,125 in PacifiCorp on October 7, 2024 and sell it today you would earn a total of 875.00 from holding PacifiCorp or generate 5.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 80.24% |
| Values | Daily Returns |
NorthWestern vs. PacifiCorp
Performance |
| Timeline |
| NorthWestern |
| PacifiCorp |
NorthWestern and PacifiCorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NorthWestern and PacifiCorp
The main advantage of trading using opposite NorthWestern and PacifiCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorthWestern position performs unexpectedly, PacifiCorp 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 PacifiCorp will offset losses from the drop in PacifiCorp's long position.| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
| PacifiCorp vs. Townsquare Media | PacifiCorp vs. BOS Better Online | PacifiCorp vs. 51Talk Online Education | PacifiCorp vs. Magnite |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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