Correlation Between RWE AG and NorthWestern
Can any of the company-specific risk be diversified away by investing in both RWE AG 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 RWE AG and NorthWestern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RWE AG PK and NorthWestern, you can compare the effects of market volatilities on RWE AG 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 RWE AG with a short position of NorthWestern. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and NorthWestern.
Diversification Opportunities for RWE AG and NorthWestern
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between RWE and NorthWestern is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and RWE AG 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 RWE AG PK 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 RWE AG i.e., RWE AG and NorthWestern go up and down completely randomly.
Pair Corralation between RWE AG and NorthWestern
Assuming the 90 days horizon RWE AG PK is expected to under-perform the NorthWestern. In addition to that, RWE AG is 1.18 times more volatile than NorthWestern. It trades about -0.09 of its total potential returns per unit of risk. NorthWestern is currently generating about 0.03 per unit of volatility. If you would invest 5,375 in NorthWestern on August 30, 2024 and sell it today you would earn a total of 97.00 from holding NorthWestern or generate 1.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
RWE AG PK vs. NorthWestern
Performance |
| Timeline |
| RWE AG PK |
| NorthWestern |
RWE AG and NorthWestern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RWE AG and NorthWestern
The main advantage of trading using opposite RWE AG and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RWE AG 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.The idea behind RWE AG PK and NorthWestern 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.| 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Technical Analysis Check basic technical indicators and analysis based on most latest market data | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios |