Correlation Between NorthWestern and Iberdrola

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

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

Diversification Opportunities for NorthWestern and Iberdrola

0.4

Correlation Coefficient

NorthWestern  Iberdrola

Very weak diversification

The 3 months correlation between NorthWestern and Iberdrola is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and NorthWestern 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 NorthWestern are associated (or correlated) with Iberdrola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iberdrola SA has no effect on the direction of NorthWestern i.e., NorthWestern and Iberdrola go up and down completely randomly.

Pair Corralation between NorthWestern and Iberdrola

Considering the 90-day investment horizon NorthWestern is expected to generate 0.78 times more return on investment than Iberdrola. However, NorthWestern is 1.28 times less risky than Iberdrola. It trades about -0.09 of its potential returns per unit of risk. Iberdrola SA is currently generating about -0.07 per unit of risk. If you would invest  5,594  in NorthWestern on September 13, 2024 and sell it today you would lose (368.00) from holding NorthWestern or give up 6.58% of portfolio value over 90 days.

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

NorthWestern  vs.  Iberdrola SA

NorthWestern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorthWestern has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iberdrola SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with NorthWestern and Iberdrola

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

The idea behind NorthWestern and Iberdrola SA 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.