Correlation Between Northern Technologies and Ingevity Corp

Can any of the company-specific risk be diversified away by investing in both Northern Technologies and Ingevity 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 Ingevity 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 Ingevity Corp, you can compare the effects of market volatilities on Northern Technologies and Ingevity 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 Ingevity Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Technologies and Ingevity Corp.

Diversification Opportunities for Northern Technologies and Ingevity Corp

0.76

Correlation Coefficient

Northern Technologies  Ingevity Corp

Poor diversification

The 3 months correlation between Northern and Ingevity is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Northern Technologies and Ingevity Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ingevity 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 Ingevity Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ingevity Corp has no effect on the direction of Northern Technologies i.e., Northern Technologies and Ingevity Corp go up and down completely randomly.

Pair Corralation between Northern Technologies and Ingevity Corp

Given the investment horizon of 90 days Northern Technologies is expected to generate 4.58 times less return on investment than Ingevity Corp. But when comparing it to its historical volatility, Northern Technologies is 1.68 times less risky than Ingevity Corp. It trades about 0.04 of its potential returns per unit of risk. Ingevity Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,811  in Ingevity Corp on August 31, 2024 and sell it today you would earn a total of  962.00  from holding Ingevity Corp or generate 25.24% return on investment over 90 days.

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

Northern Technologies  vs.  Ingevity 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.

Ingevity Corp

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ingevity Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Ingevity Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Technologies and Ingevity Corp

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

The idea behind Northern Technologies and Ingevity 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.