Correlation Between Northwest Natural and NiSource
Can any of the company-specific risk be diversified away by investing in both Northwest Natural and NiSource 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 Northwest Natural and NiSource into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northwest Natural Gas and NiSource, you can compare the effects of market volatilities on Northwest Natural and NiSource 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 Northwest Natural with a short position of NiSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northwest Natural and NiSource.
Diversification Opportunities for Northwest Natural and NiSource
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northwest and NiSource is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Natural Gas and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource and Northwest Natural 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 Northwest Natural Gas are associated (or correlated) with NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of Northwest Natural i.e., Northwest Natural and NiSource go up and down completely randomly.
Pair Corralation between Northwest Natural and NiSource
Considering the 90-day investment horizon Northwest Natural Gas is expected to generate 1.27 times more return on investment than NiSource. However, Northwest Natural is 1.27 times more volatile than NiSource. It trades about 0.3 of its potential returns per unit of risk. NiSource is currently generating about 0.32 per unit of risk. If you would invest 3,992 in Northwest Natural Gas on August 27, 2024 and sell it today you would earn a total of 386.00 from holding Northwest Natural Gas or generate 9.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northwest Natural Gas vs. NiSource
Performance |
| Timeline |
| Northwest Natural Gas |
| NiSource |
Northwest Natural and NiSource Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northwest Natural and NiSource
The main advantage of trading using opposite Northwest Natural and NiSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Natural position performs unexpectedly, NiSource 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 NiSource will offset losses from the drop in NiSource's long position.The idea behind Northwest Natural Gas and NiSource 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.| NiSource vs. NewJersey Resources | NiSource vs. Northwest Natural Gas | NiSource vs. UGI Corporation | NiSource vs. Spire Inc |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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