Correlation Between Algonquin Power and Alphabet

Can any of the company-specific risk be diversified away by investing in both Algonquin Power and Alphabet 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 Alphabet 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 Alphabet Class A, you can compare the effects of market volatilities on Algonquin Power and Alphabet 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 Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algonquin Power and Alphabet.

Diversification Opportunities for Algonquin Power and Alphabet

-0.66

Correlation Coefficient

Algonquin Power  Alphabet

Excellent diversification

The 3 months correlation between Algonquin and Alphabet is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Alphabet Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Algonquin Power i.e., Algonquin Power and Alphabet go up and down completely randomly.

Pair Corralation between Algonquin Power and Alphabet

Assuming the 90 days horizon Algonquin Power Utilities is expected to generate 0.98 times more return on investment than Alphabet. However, Algonquin Power Utilities is 1.02 times less risky than Alphabet. It trades about 0.11 of its potential returns per unit of risk. Alphabet Class A is currently generating about -0.18 per unit of risk. If you would invest  420.00  in Algonquin Power Utilities on December 24, 2024 and sell it today you would earn a total of  47.00  from holding Algonquin Power Utilities or generate 11.19% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Alphabet Class A

Algonquin Power Utilities

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Algonquin Power may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Alphabet Class A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Algonquin Power and Alphabet

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

The idea behind Algonquin Power Utilities and Alphabet Class A 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.