Correlation Between Southwest Gas and Northwest Natural
Can any of the company-specific risk be diversified away by investing in both Southwest Gas and Northwest Natural 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 Northwest Natural 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 Northwest Natural Gas, you can compare the effects of market volatilities on Southwest Gas and Northwest Natural 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 Northwest Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Gas and Northwest Natural.
Diversification Opportunities for Southwest Gas and Northwest Natural
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Northwest is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Gas Holdings and Northwest Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Natural Gas 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 Northwest Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Natural Gas has no effect on the direction of Southwest Gas i.e., Southwest Gas and Northwest Natural go up and down completely randomly.
Pair Corralation between Southwest Gas and Northwest Natural
Considering the 90-day investment horizon Southwest Gas is expected to generate 1.99 times less return on investment than Northwest Natural. In addition to that, Southwest Gas is 1.06 times more volatile than Northwest Natural Gas. It trades about 0.14 of its total potential returns per unit of risk. Northwest Natural Gas is currently generating about 0.3 per unit of volatility. 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 |
Southwest Gas Holdings vs. Northwest Natural Gas
Performance |
| Timeline |
| Southwest Gas Holdings |
| Northwest Natural Gas |
Southwest Gas and Northwest Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Gas and Northwest Natural
The main advantage of trading using opposite Southwest Gas and Northwest Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Gas position performs unexpectedly, Northwest Natural 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 Northwest Natural will offset losses from the drop in Northwest Natural's long position.The idea behind Southwest Gas Holdings and Northwest Natural Gas 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.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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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