Correlation Between Niagara Mohawk and Southern California

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

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

Diversification Opportunities for Niagara Mohawk and Southern California

0.21

Correlation Coefficient

Niagara Mohawk  Southern California

Modest diversification

The 3 months correlation between Niagara and Southern is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Niagara Mohawk Power and Southern California Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California Gas and Niagara Mohawk 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 Niagara Mohawk Power are associated (or correlated) with Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California Gas has no effect on the direction of Niagara Mohawk i.e., Niagara Mohawk and Southern California go up and down completely randomly.

Pair Corralation between Niagara Mohawk and Southern California

Assuming the 90 days horizon Niagara Mohawk Power is expected to generate 0.51 times more return on investment than Southern California. However, Niagara Mohawk Power is 1.95 times less risky than Southern California. It trades about 0.11 of its potential returns per unit of risk. Southern California Gas is currently generating about -0.03 per unit of risk. If you would invest  5,999  in Niagara Mohawk Power on September 14, 2024 and sell it today you would earn a total of  201.00  from holding Niagara Mohawk Power or generate 3.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Niagara Mohawk Power  vs.  Southern California Gas

Niagara Mohawk Power

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Niagara Mohawk Power are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Niagara Mohawk is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Southern California Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern California Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Southern California is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Niagara Mohawk and Southern California

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

The idea behind Niagara Mohawk Power and Southern California 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.