Correlation Between Algonquin Power and BROADWIND ENRGY

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

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

Diversification Opportunities for Algonquin Power and BROADWIND ENRGY

0.02

Correlation Coefficient

Algonquin Power  BROADWIND ENRGY

Significant diversification

The 3 months correlation between Algonquin and BROADWIND is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and BROADWIND ENRGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BROADWIND ENRGY and Algonquin Power 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 Algonquin Power Utilities are associated (or correlated) with BROADWIND ENRGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BROADWIND ENRGY has no effect on the direction of Algonquin Power i.e., Algonquin Power and BROADWIND ENRGY go up and down completely randomly.

Pair Corralation between Algonquin Power and BROADWIND ENRGY

Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the BROADWIND ENRGY. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 2.76 times less risky than BROADWIND ENRGY. The stock trades about -0.06 of its potential returns per unit of risk. The BROADWIND ENRGY is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  185.00  in BROADWIND ENRGY on October 25, 2024 and sell it today you would earn a total of  11.00  from holding BROADWIND ENRGY or generate 5.95% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  BROADWIND ENRGY

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Algonquin Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

BROADWIND ENRGY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BROADWIND ENRGY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BROADWIND ENRGY may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Algonquin Power and BROADWIND ENRGY

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

The idea behind Algonquin Power Utilities and BROADWIND ENRGY 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.