Correlation Between Algonquin Power and GEAR4MUSIC

Can any of the company-specific risk be diversified away by investing in both Algonquin Power and GEAR4MUSIC 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 GEAR4MUSIC 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 GEAR4MUSIC LS 10, you can compare the effects of market volatilities on Algonquin Power and GEAR4MUSIC 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 GEAR4MUSIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algonquin Power and GEAR4MUSIC.

Diversification Opportunities for Algonquin Power and GEAR4MUSIC

0.5

Correlation Coefficient

Algonquin Power  GEAR4MUSIC

Very weak diversification

The 3 months correlation between Algonquin and GEAR4MUSIC is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and GEAR4MUSIC LS 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEAR4MUSIC LS 10 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 GEAR4MUSIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEAR4MUSIC LS 10 has no effect on the direction of Algonquin Power i.e., Algonquin Power and GEAR4MUSIC go up and down completely randomly.

Pair Corralation between Algonquin Power and GEAR4MUSIC

Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the GEAR4MUSIC. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.73 times less risky than GEAR4MUSIC. The stock trades about -0.01 of its potential returns per unit of risk. The GEAR4MUSIC LS 10 is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  118.00  in GEAR4MUSIC LS 10 on September 18, 2024 and sell it today you would earn a total of  67.00  from holding GEAR4MUSIC LS 10 or generate 56.78% 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.  GEAR4MUSIC LS 10

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 fragile 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.

GEAR4MUSIC LS 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GEAR4MUSIC LS 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GEAR4MUSIC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Algonquin Power and GEAR4MUSIC

The main advantage of trading using opposite Algonquin Power and GEAR4MUSIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power position performs unexpectedly, GEAR4MUSIC 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 GEAR4MUSIC will offset losses from the drop in GEAR4MUSIC's long position.

The idea behind Algonquin Power Utilities and GEAR4MUSIC LS 10 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.