Correlation Between HE Equipment and Niagara Mohawk

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

By analyzing existing cross correlation between HE Equipment Services and Niagara Mohawk Power, you can compare the effects of market volatilities on HE Equipment and Niagara Mohawk 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 HE Equipment with a short position of Niagara Mohawk. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and Niagara Mohawk.

Diversification Opportunities for HE Equipment and Niagara Mohawk

0.62

Correlation Coefficient

HE Equipment  Niagara Mohawk

Poor diversification

The 3 months correlation between HEES and Niagara is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Niagara Mohawk Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Niagara Mohawk Power and HE Equipment 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 HE Equipment Services are associated (or correlated) with Niagara Mohawk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Niagara Mohawk Power has no effect on the direction of HE Equipment i.e., HE Equipment and Niagara Mohawk go up and down completely randomly.

Pair Corralation between HE Equipment and Niagara Mohawk

Given the investment horizon of 90 days HE Equipment Services is expected to generate 3.27 times more return on investment than Niagara Mohawk. However, HE Equipment is 3.27 times more volatile than Niagara Mohawk Power. It trades about 0.19 of its potential returns per unit of risk. Niagara Mohawk Power is currently generating about 0.17 per unit of risk. If you would invest  4,455  in HE Equipment Services on September 2, 2024 and sell it today you would earn a total of  1,519  from holding HE Equipment Services or generate 34.1% return on investment over 90 days.

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

HE Equipment Services  vs.  Niagara Mohawk Power

HE Equipment Services

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Niagara Mohawk Power

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Niagara Mohawk Power are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Niagara Mohawk may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with HE Equipment and Niagara Mohawk

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

The idea behind HE Equipment Services and Niagara Mohawk Power 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.