Correlation Between Northwest Natural and RGC Resources
Can any of the company-specific risk be diversified away by investing in both Northwest Natural and RGC Resources 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 RGC Resources 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 RGC Resources, you can compare the effects of market volatilities on Northwest Natural and RGC Resources 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 RGC Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northwest Natural and RGC Resources.
Diversification Opportunities for Northwest Natural and RGC Resources
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Northwest and RGC is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Natural Gas and RGC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RGC Resources 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 RGC Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RGC Resources has no effect on the direction of Northwest Natural i.e., Northwest Natural and RGC Resources go up and down completely randomly.
Pair Corralation between Northwest Natural and RGC Resources
Considering the 90-day investment horizon Northwest Natural Gas is expected to generate 0.42 times more return on investment than RGC Resources. However, Northwest Natural Gas is 2.37 times less risky than RGC Resources. It trades about 0.3 of its potential returns per unit of risk. RGC Resources is currently generating about 0.07 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 | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northwest Natural Gas vs. RGC Resources
Performance |
| Timeline |
| Northwest Natural Gas |
| RGC Resources |
Northwest Natural and RGC Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northwest Natural and RGC Resources
The main advantage of trading using opposite Northwest Natural and RGC Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Natural position performs unexpectedly, RGC Resources 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 RGC Resources will offset losses from the drop in RGC Resources' long position.The idea behind Northwest Natural Gas and RGC Resources 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.| RGC Resources vs. NewJersey Resources | RGC Resources vs. One Gas | RGC Resources vs. Northwest Natural Gas | RGC Resources vs. Chesapeake Utilities |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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