Correlation Between Northwest Pipe and CompoSecure

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

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

Diversification Opportunities for Northwest Pipe and CompoSecure

0.78

Correlation Coefficient

Northwest Pipe  CompoSecure

Poor diversification

The 3 months correlation between Northwest and CompoSecure is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Pipe and CompoSecure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompoSecure and Northwest Pipe 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 Pipe are associated (or correlated) with CompoSecure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompoSecure has no effect on the direction of Northwest Pipe i.e., Northwest Pipe and CompoSecure go up and down completely randomly.

Pair Corralation between Northwest Pipe and CompoSecure

Given the investment horizon of 90 days Northwest Pipe is expected to under-perform the CompoSecure. But the stock apears to be less risky and, when comparing its historical volatility, Northwest Pipe is 1.59 times less risky than CompoSecure. The stock trades about -0.2 of its potential returns per unit of risk. The CompoSecure is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  703.00  in CompoSecure on February 4, 2024 and sell it today you would earn a total of  20.00  from holding CompoSecure or generate 2.84% return on investment over 90 days.

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

Northwest Pipe  vs.  CompoSecure

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 may actually be approaching a critical reversion point that can send shares even higher in June 2024.

CompoSecure

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CompoSecure are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, CompoSecure displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northwest Pipe and CompoSecure

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

The idea behind Northwest Pipe and CompoSecure 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.