Correlation Between North West and Winpak

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

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

Diversification Opportunities for North West and Winpak

0.68

Correlation Coefficient

North West  Winpak

Poor diversification

The 3 months correlation between North and Winpak is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding North West and Winpak in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Winpak and North West 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 North West are associated (or correlated) with Winpak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Winpak has no effect on the direction of North West i.e., North West and Winpak go up and down completely randomly.

Pair Corralation between North West and Winpak

Assuming the 90 days trading horizon North West is expected to generate 0.85 times more return on investment than Winpak. However, North West is 1.18 times less risky than Winpak. It trades about 0.02 of its potential returns per unit of risk. Winpak is currently generating about -0.04 per unit of risk. If you would invest  5,316  in North West on September 5, 2024 and sell it today you would earn a total of  18.00  from holding North West or generate 0.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

North West  vs.  Winpak

North West

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North West are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, North West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Winpak

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Winpak are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal forward-looking signals, Winpak may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with North West and Winpak

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

The idea behind North West and Winpak 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.