Correlation Between Eversource Energy and Northwest Natural

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

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

Diversification Opportunities for Eversource Energy and Northwest Natural

-0.46

Correlation Coefficient

Eversource Energy  Northwest Natural

Very good diversification

The 3 months correlation between Eversource and Northwest is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Eversource Energy and Northwest Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Natural Gas and Eversource Energy 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 Eversource Energy are associated (or correlated) with Northwest Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Natural Gas has no effect on the direction of Eversource Energy i.e., Eversource Energy and Northwest Natural go up and down completely randomly.

Pair Corralation between Eversource Energy and Northwest Natural

Allowing for the 90-day total investment horizon Eversource Energy is expected to under-perform the Northwest Natural. But the stock apears to be less risky and, when comparing its historical volatility, Eversource Energy is 1.19 times less risky than Northwest Natural. The stock trades about -0.04 of its potential returns per unit of risk. The Northwest Natural Gas is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  3,951  in Northwest Natural Gas on August 31, 2024 and sell it today you would earn a total of  383.00  from holding Northwest Natural Gas or generate 9.69% return on investment over 90 days.

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

Eversource Energy  vs.  Northwest Natural Gas

Eversource Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eversource Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Eversource Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Northwest Natural Gas

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Natural Gas are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Northwest Natural may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Eversource Energy and Northwest Natural

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

The idea behind Eversource Energy and Northwest Natural Gas 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.