Correlation Between Algonquin Power and Nordic Semiconductor

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

Diversification Opportunities for Algonquin Power and Nordic Semiconductor

0.84

Correlation Coefficient

Algonquin Power  Nordic Semiconductor

Very poor diversification

The 3 months correlation between Algonquin and Nordic is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor ASA 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 Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of Algonquin Power i.e., Algonquin Power and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between Algonquin Power and Nordic Semiconductor

Assuming the 90 days horizon Algonquin Power is expected to generate 3.46 times less return on investment than Nordic Semiconductor. But when comparing it to its historical volatility, Algonquin Power Utilities is 2.22 times less risky than Nordic Semiconductor. It trades about 0.11 of its potential returns per unit of risk. Nordic Semiconductor ASA is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  825.00  in Nordic Semiconductor ASA on December 23, 2024 and sell it today you would earn a total of  355.00  from holding Nordic Semiconductor ASA or generate 43.03% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Nordic Semiconductor ASA

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 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Algonquin Power may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Nordic Semiconductor ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic Semiconductor ASA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Nordic Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algonquin Power and Nordic Semiconductor

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

The idea behind Algonquin Power Utilities and Nordic Semiconductor ASA 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.