Correlation Between Northern Oil and Brown Forman

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

Diversification Opportunities for Northern Oil and Brown Forman

  Correlation Coefficient

Very weak diversification

The 3 months correlation between Northern and Brown is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and Brown-Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown-Forman and Northern Oil 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 Northern Oil Gas are associated (or correlated) with Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown-Forman has no effect on the direction of Northern Oil i.e., Northern Oil and Brown Forman go up and down completely randomly.

Pair Corralation between Northern Oil and Brown Forman

Considering the 90-day investment horizon Northern Oil Gas is expected to under-perform the Brown Forman. In addition to that, Northern Oil is 2.06 times more volatile than Brown-Forman. It trades about -0.27 of its total potential returns per unit of risk. Brown-Forman is currently generating about -0.16 per unit of volatility. If you would invest  6,470  in Brown-Forman on December 20, 2022 and sell it today you would lose (304.00)  from holding Brown-Forman or give up 4.7% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Northern Oil Gas  vs.  Brown-Forman

 Performance (%) 
Northern Oil Gas 

Northern Performance

0 of 100

Over the last 90 days Northern Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 and Brown Forman Volatility Contrast

   Predicted Return Density   

Pair Trading with Northern Oil and Brown Forman

The main advantage of trading using opposite Northern Oil and Brown Forman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Oil position performs unexpectedly, Brown Forman 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 Brown Forman will offset losses from the drop in Brown Forman's long position.
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The idea behind Northern Oil Gas and Brown-Forman 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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