Correlation Between NorthWestern and Allete

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

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

Diversification Opportunities for NorthWestern and Allete

0.44

Correlation Coefficient

NorthWestern  Allete

Very weak diversification

The 3 months correlation between NorthWestern and Allete is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc and NorthWestern 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 NorthWestern are associated (or correlated) with Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of NorthWestern i.e., NorthWestern and Allete go up and down completely randomly.

Pair Corralation between NorthWestern and Allete

Considering the 90-day investment horizon NorthWestern is expected to generate 2.87 times more return on investment than Allete. However, NorthWestern is 2.87 times more volatile than Allete Inc. It trades about 0.05 of its potential returns per unit of risk. Allete Inc is currently generating about 0.07 per unit of risk. If you would invest  5,156  in NorthWestern on August 18, 2024 and sell it today you would earn a total of  363.00  from holding NorthWestern or generate 7.04% return on investment over 90 days.

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

NorthWestern  vs.  Allete Inc

NorthWestern

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NorthWestern are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, NorthWestern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Allete Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Allete is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NorthWestern and Allete

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

The idea behind NorthWestern and Allete Inc 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.