Correlation Between Southwest Gas and NewJersey Resources
Can any of the company-specific risk be diversified away by investing in both Southwest Gas and NewJersey 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 Southwest Gas and NewJersey Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Gas Holdings and NewJersey Resources, you can compare the effects of market volatilities on Southwest Gas and NewJersey 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 Southwest Gas with a short position of NewJersey Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Gas and NewJersey Resources.
Diversification Opportunities for Southwest Gas and NewJersey Resources
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and NewJersey is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Gas Holdings and NewJersey Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewJersey Resources and Southwest Gas 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 Southwest Gas Holdings are associated (or correlated) with NewJersey Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewJersey Resources has no effect on the direction of Southwest Gas i.e., Southwest Gas and NewJersey Resources go up and down completely randomly.
Pair Corralation between Southwest Gas and NewJersey Resources
Considering the 90-day investment horizon Southwest Gas is expected to generate 2.03 times less return on investment than NewJersey Resources. In addition to that, Southwest Gas is 1.36 times more volatile than NewJersey Resources. It trades about 0.14 of its total potential returns per unit of risk. NewJersey Resources is currently generating about 0.39 per unit of volatility. If you would invest 4,639 in NewJersey Resources on August 27, 2024 and sell it today you would earn a total of 465.00 from holding NewJersey Resources or generate 10.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Gas Holdings vs. NewJersey Resources
Performance |
| Timeline |
| Southwest Gas Holdings |
| NewJersey Resources |
Southwest Gas and NewJersey Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Gas and NewJersey Resources
The main advantage of trading using opposite Southwest Gas and NewJersey Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Gas position performs unexpectedly, NewJersey 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 NewJersey Resources will offset losses from the drop in NewJersey Resources' long position.The idea behind Southwest Gas Holdings and NewJersey 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.| NewJersey Resources vs. Atmos Energy | NewJersey Resources vs. UGI Corporation | NewJersey Resources vs. Chesapeake Utilities | NewJersey Resources 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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