Correlation Between Algonquin Power and Amazon

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

Diversification Opportunities for Algonquin Power and Amazon

-0.6

Correlation Coefficient

Algonquin Power  Amazon

Excellent diversification

The 3 months correlation between Algonquin and Amazon is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Algonquin Power i.e., Algonquin Power and Amazon go up and down completely randomly.

Pair Corralation between Algonquin Power and Amazon

Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the Amazon. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.13 times less risky than Amazon. The stock trades about -0.01 of its potential returns per unit of risk. The Amazon Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  15,918  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  3,764  from holding Amazon Inc or generate 23.65% 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.  Amazon Inc

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.

Amazon Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algonquin Power and Amazon

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

The idea behind Algonquin Power Utilities and Amazon Inc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.