Correlation Between Northwest Natural and UGI Corp

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

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

Diversification Opportunities for Northwest Natural and UGI Corp

0.16

Correlation Coefficient

Northwest Natural  UGI Corp

Average diversification

The 3 months correlation between Northwest and UGI is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Natural Gas and UGI Corp Unit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UGI Corp Unit and Northwest Natural 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 Northwest Natural Gas are associated (or correlated) with UGI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UGI Corp Unit has no effect on the direction of Northwest Natural i.e., Northwest Natural and UGI Corp go up and down completely randomly.

Pair Corralation between Northwest Natural and UGI Corp

Considering the 90-day investment horizon Northwest Natural is expected to generate 3.78 times less return on investment than UGI Corp. But when comparing it to its historical volatility, Northwest Natural Gas is 1.39 times less risky than UGI Corp. It trades about 0.02 of its potential returns per unit of risk. UGI Corp Unit is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,568  in UGI Corp Unit on March 14, 2024 and sell it today you would earn a total of  210.00  from holding UGI Corp Unit or generate 3.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.32%
Values	Daily Returns

Northwest Natural Gas  vs.  UGI Corp Unit

Northwest Natural Gas

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Natural Gas are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Northwest Natural is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

UGI Corp Unit

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days UGI Corp Unit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, UGI Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Northwest Natural and UGI Corp

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

The idea behind Northwest Natural Gas and UGI Corp Unit 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.