Correlation Between NiSource and NewJersey Resources

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

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

Diversification Opportunities for NiSource and NewJersey Resources

0.91

Correlation Coefficient

NiSource  NewJersey Resources

Almost no diversification

The 3 months correlation between NiSource and NewJersey is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding NiSource and NewJersey Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewJersey Resources and NiSource 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 NiSource are associated (or correlated) with NewJersey Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewJersey Resources has no effect on the direction of NiSource i.e., NiSource and NewJersey Resources go up and down completely randomly.

Pair Corralation between NiSource and NewJersey Resources

Allowing for the 90-day total investment horizon NiSource is expected to generate 0.88 times more return on investment than NewJersey Resources. However, NiSource is 1.14 times less risky than NewJersey Resources. It trades about 0.27 of its potential returns per unit of risk. NewJersey Resources is currently generating about 0.2 per unit of risk. If you would invest  2,708  in NiSource on February 3, 2024 and sell it today you would earn a total of  142.00  from holding NiSource or generate 5.24% return on investment over 90 days.

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

NiSource  vs.  NewJersey Resources

NiSource

Risk-Adjusted Performance

19 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward indicators, NiSource demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NewJersey Resources

Risk-Adjusted Performance

14 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NewJersey Resources are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking indicators, NewJersey Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NiSource and NewJersey Resources

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

The idea behind NiSource and NewJersey Resources 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.