Correlation Between Brown Forman and Northern Oil

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

-0.82

Correlation Coefficient

Brown Forman  Northern Oil

Pay attention - limited upside

The 3 months correlation between Brown and Northern is -0.82. 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 under-perform the Northern Oil. In addition to that, Brown Forman is 1.04 times more volatile than Northern Oil Gas. It trades about -0.04 of its total potential returns per unit of risk. Northern Oil Gas is currently generating about 0.05 per unit of volatility. If you would invest  3,816  in Northern Oil Gas on January 19, 2024 and sell it today you would earn a total of  389.00  from holding Northern Oil Gas or generate 10.19% return on investment over 90 days.

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

Brown Forman  vs.  Northern Oil Gas

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Northern Oil Gas

Risk-Adjusted Performance

19 of 100

Solid

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

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.

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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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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.