Correlation Between Algonquin Power and EMERSON ELECTRIC

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

Diversification Opportunities for Algonquin Power and EMERSON ELECTRIC

-0.26

Correlation Coefficient

Algonquin Power  EMERSON ELECTRIC

Very good diversification

The 3 months correlation between Algonquin and EMERSON is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and EMERSON ELECTRIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMERSON ELECTRIC 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 EMERSON ELECTRIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMERSON ELECTRIC has no effect on the direction of Algonquin Power i.e., Algonquin Power and EMERSON ELECTRIC go up and down completely randomly.

Pair Corralation between Algonquin Power and EMERSON ELECTRIC

Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the EMERSON ELECTRIC. In addition to that, Algonquin Power is 1.19 times more volatile than EMERSON ELECTRIC. It trades about -0.02 of its total potential returns per unit of risk. EMERSON ELECTRIC is currently generating about 0.06 per unit of volatility. If you would invest  7,859  in EMERSON ELECTRIC on October 22, 2024 and sell it today you would earn a total of  4,243  from holding EMERSON ELECTRIC or generate 53.99% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  EMERSON ELECTRIC

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.

EMERSON ELECTRIC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EMERSON ELECTRIC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, EMERSON ELECTRIC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algonquin Power and EMERSON ELECTRIC

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

The idea behind Algonquin Power Utilities and EMERSON ELECTRIC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.