Correlation Between DIVERSIFIED ROYALTY and NiSource

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

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

Diversification Opportunities for DIVERSIFIED ROYALTY and NiSource

0.68

Correlation Coefficient

DIVERSIFIED ROYALTY  NiSource

Poor diversification

The 3 months correlation between DIVERSIFIED and NiSource is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding DIVERSIFIED ROYALTY and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY are associated (or correlated) with NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of DIVERSIFIED ROYALTY i.e., DIVERSIFIED ROYALTY and NiSource go up and down completely randomly.

Pair Corralation between DIVERSIFIED ROYALTY and NiSource

Assuming the 90 days horizon DIVERSIFIED ROYALTY is expected to generate 1.45 times less return on investment than NiSource. In addition to that, DIVERSIFIED ROYALTY is 2.07 times more volatile than NiSource. It trades about 0.05 of its total potential returns per unit of risk. NiSource is currently generating about 0.15 per unit of volatility. If you would invest  2,338  in NiSource on September 4, 2024 and sell it today you would earn a total of  1,182  from holding NiSource or generate 50.56% return on investment over 90 days.

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

DIVERSIFIED ROYALTY  vs.  NiSource

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DIVERSIFIED ROYALTY are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DIVERSIFIED ROYALTY reported solid returns over the last few months and may actually be approaching a breakup point.

NiSource

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NiSource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIVERSIFIED ROYALTY and NiSource

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

The idea behind DIVERSIFIED ROYALTY and NiSource 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.