Correlation Between NORTHEAST UTILITIES and Lamar Advertising

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

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

Diversification Opportunities for NORTHEAST UTILITIES and Lamar Advertising

0.44

Correlation Coefficient

NORTHEAST UTILITIES  Lamar Advertising

Very weak diversification

The 3 months correlation between NORTHEAST and Lamar is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding NORTHEAST UTILITIES and Lamar Advertising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamar Advertising and NORTHEAST UTILITIES 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 NORTHEAST UTILITIES are associated (or correlated) with Lamar Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamar Advertising has no effect on the direction of NORTHEAST UTILITIES i.e., NORTHEAST UTILITIES and Lamar Advertising go up and down completely randomly.

Pair Corralation between NORTHEAST UTILITIES and Lamar Advertising

Assuming the 90 days trading horizon NORTHEAST UTILITIES is expected to under-perform the Lamar Advertising. But the stock apears to be less risky and, when comparing its historical volatility, NORTHEAST UTILITIES is 1.14 times less risky than Lamar Advertising. The stock trades about -0.03 of its potential returns per unit of risk. The Lamar Advertising is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,091  in Lamar Advertising on September 29, 2024 and sell it today you would earn a total of  3,709  from holding Lamar Advertising or generate 45.84% return on investment over 90 days.

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

NORTHEAST UTILITIES  vs.  Lamar Advertising

NORTHEAST UTILITIES

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lamar Advertising

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lamar Advertising has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Lamar Advertising is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NORTHEAST UTILITIES and Lamar Advertising

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

The idea behind NORTHEAST UTILITIES and Lamar Advertising 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.