Correlation Between AES and NorthWestern

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

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

Diversification Opportunities for AES and NorthWestern

0.5

Correlation Coefficient

AES  NorthWestern

Very weak diversification

The 3 months correlation between AES and NorthWestern is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding The AES and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern and AES 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 The AES are associated (or correlated) with NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of AES i.e., AES and NorthWestern go up and down completely randomly.

Pair Corralation between AES and NorthWestern

Considering the 90-day investment horizon The AES is expected to under-perform the NorthWestern. In addition to that, AES is 2.34 times more volatile than NorthWestern. It trades about -0.28 of its total potential returns per unit of risk. NorthWestern is currently generating about -0.07 per unit of volatility. If you would invest  5,647  in NorthWestern on August 19, 2024 and sell it today you would lose (128.00) from holding NorthWestern or give up 2.27% of portfolio value over 90 days.

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

The AES  vs.  NorthWestern

AES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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.

Pair Trading with AES and NorthWestern

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

The idea behind The AES and NorthWestern 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.