Correlation Between PPG Industries and Northern Technologies

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

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

Diversification Opportunities for PPG Industries and Northern Technologies

-0.76

Correlation Coefficient

PPG Industries  Northern Technologies

Pay attention - limited upside

The 3 months correlation between PPG and Northern is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding PPG Industries and Northern Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Technologies and PPG Industries 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 PPG Industries are associated (or correlated) with Northern Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Technologies has no effect on the direction of PPG Industries i.e., PPG Industries and Northern Technologies go up and down completely randomly.

Pair Corralation between PPG Industries and Northern Technologies

Considering the 90-day investment horizon PPG Industries is expected to under-perform the Northern Technologies. But the stock apears to be less risky and, when comparing its historical volatility, PPG Industries is 2.63 times less risky than Northern Technologies. The stock trades about -0.13 of its potential returns per unit of risk. The Northern Technologies is currently generating about 0.59 of returns per unit of risk over similar time horizon. If you would invest  1,200  in Northern Technologies on February 8, 2024 and sell it today you would earn a total of  687.00  from holding Northern Technologies or generate 57.25% return on investment over 90 days.

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

PPG Industries  vs.  Northern Technologies

PPG Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PPG Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PPG Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Northern Technologies

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Technologies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Northern Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PPG Industries and Northern Technologies

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

The idea behind PPG Industries and Northern Technologies 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.