Correlation Between Algonquin Power and Air New

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

Diversification Opportunities for Algonquin Power and Air New

0.43

Correlation Coefficient

Algonquin Power  Air New

Very weak diversification

The 3 months correlation between Algonquin and Air is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand 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 Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of Algonquin Power i.e., Algonquin Power and Air New go up and down completely randomly.

Pair Corralation between Algonquin Power and Air New

Assuming the 90 days horizon Algonquin Power Utilities is expected to generate 1.06 times more return on investment than Air New. However, Algonquin Power is 1.06 times more volatile than Air New Zealand. It trades about 0.1 of its potential returns per unit of risk. Air New Zealand is currently generating about 0.07 per unit of risk. If you would invest  420.00  in Algonquin Power Utilities on December 21, 2024 and sell it today you would earn a total of  42.00  from holding Algonquin Power Utilities or generate 10.0% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Air New Zealand

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 7 (%) 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.

Air New Zealand

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Air New may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Algonquin Power and Air New

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

The idea behind Algonquin Power Utilities and Air New Zealand 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.