Correlation Between NiSource and Southwest Gas

Can any of the company-specific risk be diversified away by investing in both NiSource and Southwest Gas 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 NiSource and Southwest Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NiSource and Southwest Gas Holdings, you can compare the effects of market volatilities on NiSource and Southwest Gas 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 NiSource with a short position of Southwest Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of NiSource and Southwest Gas.

Diversification Opportunities for NiSource and Southwest Gas

0.63

Correlation Coefficient

NiSource  Southwest Gas

Poor diversification

The 3 months correlation between NiSource and Southwest is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NiSource and Southwest Gas Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Gas Holdings and NiSource 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 NiSource are associated (or correlated) with Southwest Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Gas Holdings has no effect on the direction of NiSource i.e., NiSource and Southwest Gas go up and down completely randomly.

Pair Corralation between NiSource and Southwest Gas

Allowing for the 90-day total investment horizon NiSource is expected to generate 0.97 times more return on investment than Southwest Gas. However, NiSource is 1.03 times less risky than Southwest Gas. It trades about 0.03 of its potential returns per unit of risk. Southwest Gas Holdings is currently generating about -0.03 per unit of risk. If you would invest  3,618  in NiSource on January 8, 2025 and sell it today you would earn a total of  93.00  from holding NiSource or generate 2.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

NiSource  vs.  Southwest Gas Holdings

NiSource

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, NiSource is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Southwest Gas Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Gas Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Southwest Gas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NiSource and Southwest Gas

The main advantage of trading using opposite NiSource and Southwest Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NiSource position performs unexpectedly, Southwest Gas 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 Southwest Gas will offset losses from the drop in Southwest Gas' long position.

The idea behind NiSource and Southwest Gas Holdings 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.

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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.