Correlation Between Thyssenkrupp and Northwest Pipe

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

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

Diversification Opportunities for Thyssenkrupp and Northwest Pipe

0.49

Correlation Coefficient

Thyssenkrupp  Northwest Pipe

Very weak diversification

The 3 months correlation between Thyssenkrupp and Northwest is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Thyssenkrupp AG ON and Northwest Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Pipe and Thyssenkrupp 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 Thyssenkrupp AG ON are associated (or correlated) with Northwest Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Pipe has no effect on the direction of Thyssenkrupp i.e., Thyssenkrupp and Northwest Pipe go up and down completely randomly.

Pair Corralation between Thyssenkrupp and Northwest Pipe

Assuming the 90 days horizon Thyssenkrupp AG ON is expected to generate 2.01 times more return on investment than Northwest Pipe. However, Thyssenkrupp is 2.01 times more volatile than Northwest Pipe. It trades about 0.07 of its potential returns per unit of risk. Northwest Pipe is currently generating about 0.09 per unit of risk. If you would invest  358.00  in Thyssenkrupp AG ON on September 20, 2024 and sell it today you would earn a total of  51.00  from holding Thyssenkrupp AG ON or generate 14.25% return on investment over 90 days.

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

Thyssenkrupp AG ON  vs.  Northwest Pipe

Thyssenkrupp AG ON

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thyssenkrupp AG ON are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Thyssenkrupp reported solid returns over the last few months and may actually be approaching a breakup point.

Northwest Pipe

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Pipe are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Northwest Pipe showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thyssenkrupp and Northwest Pipe

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

The idea behind Thyssenkrupp AG ON and Northwest Pipe 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.