Correlation Between Algonquin Power and CDN IMPERIAL

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

Diversification Opportunities for Algonquin Power and CDN IMPERIAL

-0.67

Correlation Coefficient

Algonquin Power  CDN IMPERIAL

Excellent diversification

The 3 months correlation between Algonquin and CDN is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and CDN IMPERIAL BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDN IMPERIAL BANK 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 CDN IMPERIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDN IMPERIAL BANK has no effect on the direction of Algonquin Power i.e., Algonquin Power and CDN IMPERIAL go up and down completely randomly.

Pair Corralation between Algonquin Power and CDN IMPERIAL

Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the CDN IMPERIAL. In addition to that, Algonquin Power is 1.91 times more volatile than CDN IMPERIAL BANK. It trades about -0.08 of its total potential returns per unit of risk. CDN IMPERIAL BANK is currently generating about 0.27 per unit of volatility. If you would invest  4,241  in CDN IMPERIAL BANK on September 30, 2024 and sell it today you would earn a total of  1,802  from holding CDN IMPERIAL BANK or generate 42.49% 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.  CDN IMPERIAL BANK

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 latest uncertain 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.

CDN IMPERIAL BANK

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CDN IMPERIAL BANK are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, CDN IMPERIAL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Algonquin Power and CDN IMPERIAL

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

The idea behind Algonquin Power Utilities and CDN IMPERIAL BANK 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.