Correlation Between Northwest Natural and NorthWestern
Can any of the company-specific risk be diversified away by investing in both Northwest Natural and NorthWestern 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 NorthWestern 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 NorthWestern, you can compare the effects of market volatilities on Northwest Natural and NorthWestern 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 NorthWestern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northwest Natural and NorthWestern.
Diversification Opportunities for Northwest Natural and NorthWestern
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Northwest and NorthWestern is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Natural Gas and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern 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 NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of Northwest Natural i.e., Northwest Natural and NorthWestern go up and down completely randomly.
Pair Corralation between Northwest Natural and NorthWestern
Considering the 90-day investment horizon Northwest Natural is expected to generate 1.73 times less return on investment than NorthWestern. In addition to that, Northwest Natural is 1.19 times more volatile than NorthWestern. It trades about 0.01 of its total potential returns per unit of risk. NorthWestern is currently generating about 0.01 per unit of volatility. If you would invest 5,244 in NorthWestern on August 30, 2024 and sell it today you would earn a total of 228.00 from holding NorthWestern or generate 4.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northwest Natural Gas vs. NorthWestern
Performance |
| Timeline |
| Northwest Natural Gas |
| NorthWestern |
Northwest Natural and NorthWestern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northwest Natural and NorthWestern
The main advantage of trading using opposite Northwest Natural and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Natural position performs unexpectedly, NorthWestern 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 NorthWestern will offset losses from the drop in NorthWestern's long position.| Northwest Natural vs. Chesapeake Utilities | Northwest Natural vs. One Gas | Northwest Natural vs. NiSource | Northwest Natural vs. NewJersey Resources |
| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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