Correlation Between Northwest Natural and OPAL Fuels

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

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

Diversification Opportunities for Northwest Natural and OPAL Fuels

0.21

Correlation Coefficient

Northwest Natural  OPAL Fuels

Modest diversification

The 3 months correlation between Northwest and OPAL is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Natural Gas and OPAL Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OPAL Fuels and Northwest Natural 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 Northwest Natural Gas are associated (or correlated) with OPAL Fuels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OPAL Fuels has no effect on the direction of Northwest Natural i.e., Northwest Natural and OPAL Fuels go up and down completely randomly.

Pair Corralation between Northwest Natural and OPAL Fuels

Considering the 90-day investment horizon Northwest Natural Gas is expected to generate 0.48 times more return on investment than OPAL Fuels. However, Northwest Natural Gas is 2.08 times less risky than OPAL Fuels. It trades about -0.02 of its potential returns per unit of risk. OPAL Fuels is currently generating about -0.04 per unit of risk. If you would invest  4,032  in Northwest Natural Gas on September 30, 2024 and sell it today you would lose (84.00) from holding Northwest Natural Gas or give up 2.08% of portfolio value over 90 days.

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

Northwest Natural Gas  vs.  OPAL Fuels

Northwest Natural Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northwest Natural Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Northwest Natural is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

OPAL Fuels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OPAL Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Northwest Natural and OPAL Fuels

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

The idea behind Northwest Natural Gas and OPAL Fuels 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.