Correlation Between Northern Technologies and Albemarle Corp

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

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

Diversification Opportunities for Northern Technologies and Albemarle Corp

0.51

Correlation Coefficient

Northern Technologies  Albemarle Corp

Very weak diversification

The 3 months correlation between Northern and Albemarle is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Northern Technologies and Albemarle Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle Corp and Northern Technologies 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 Northern Technologies are associated (or correlated) with Albemarle Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle Corp has no effect on the direction of Northern Technologies i.e., Northern Technologies and Albemarle Corp go up and down completely randomly.

Pair Corralation between Northern Technologies and Albemarle Corp

Given the investment horizon of 90 days Northern Technologies is expected to generate 4.05 times less return on investment than Albemarle Corp. But when comparing it to its historical volatility, Northern Technologies is 1.46 times less risky than Albemarle Corp. It trades about 0.03 of its potential returns per unit of risk. Albemarle Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,984  in Albemarle Corp on August 30, 2024 and sell it today you would earn a total of  1,814  from holding Albemarle Corp or generate 20.19% return on investment over 90 days.

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

Northern Technologies  vs.  Albemarle Corp

Northern Technologies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Northern Technologies is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Albemarle Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Albemarle Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, Albemarle Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Technologies and Albemarle Corp

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

The idea behind Northern Technologies and Albemarle Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.