Correlation Between Brown Forman and Northern Oil

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Can any of the company-specific risk be diversified away by investing in both Brown Forman and Northern Oil 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 Brown Forman and Northern Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brown-Forman and Northern Oil Gas, you can compare the effects of market volatilities on Brown Forman and Northern Oil 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 Brown Forman with a short position of Northern Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Forman and Northern Oil.

Diversification Opportunities for Brown Forman and Northern Oil

  Correlation Coefficient

Poor diversification

The 3 months correlation between Brown and Northern is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Brown-Forman and Northern Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Oil Gas and Brown Forman 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 Brown-Forman are associated (or correlated) with Northern Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Oil Gas has no effect on the direction of Brown Forman i.e., Brown Forman and Northern Oil go up and down completely randomly.

Pair Corralation between Brown Forman and Northern Oil

Given the investment horizon of 90 days Brown-Forman is expected to generate 0.45 times more return on investment than Northern Oil. However, Brown-Forman is 2.25 times less risky than Northern Oil. It trades about -0.06 of its potential returns per unit of risk. Northern Oil Gas is currently generating about -0.07 per unit of risk. If you would invest  6,563  in Brown-Forman on January 1, 2023 and sell it today you would lose (136.00)  from holding Brown-Forman or give up 2.07% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Brown-Forman  vs.  Northern Oil Gas

 Performance (%) 

Brown Performance

0 of 100

Over the last 90 days Brown-Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Brown Forman is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Northern Oil Gas 

Northern Performance

3 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Oil Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Northern Oil may actually be approaching a critical reversion point that can send shares even higher in May 2023.

Brown Forman and Northern Oil Volatility Contrast

   Predicted Return Density   

Pair Trading with Brown Forman and Northern Oil

The main advantage of trading using opposite Brown Forman and Northern Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Forman position performs unexpectedly, Northern Oil 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 Northern Oil will offset losses from the drop in Northern Oil's long position.
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The idea behind Brown-Forman and Northern Oil Gas 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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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 ETF Directory module to find actively traded Exchange Traded Funds (ETF) from around the world.

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