Correlation Between Algonquin Power and NORTHEAST UTILITIES

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

Diversification Opportunities for Algonquin Power and NORTHEAST UTILITIES

0.62

Correlation Coefficient

Algonquin Power  NORTHEAST UTILITIES

Poor diversification

The 3 months correlation between Algonquin and NORTHEAST is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and NORTHEAST UTILITIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORTHEAST UTILITIES 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 NORTHEAST UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORTHEAST UTILITIES has no effect on the direction of Algonquin Power i.e., Algonquin Power and NORTHEAST UTILITIES go up and down completely randomly.

Pair Corralation between Algonquin Power and NORTHEAST UTILITIES

Assuming the 90 days horizon Algonquin Power Utilities is expected to generate 1.33 times more return on investment than NORTHEAST UTILITIES. However, Algonquin Power is 1.33 times more volatile than NORTHEAST UTILITIES. It trades about -0.02 of its potential returns per unit of risk. NORTHEAST UTILITIES is currently generating about -0.03 per unit of risk. If you would invest  543.00  in Algonquin Power Utilities on September 20, 2024 and sell it today you would lose (127.00) from holding Algonquin Power Utilities or give up 23.39% of portfolio value over 90 days.

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

Algonquin Power Utilities  vs.  NORTHEAST UTILITIES

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

NORTHEAST UTILITIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORTHEAST UTILITIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Algonquin Power and NORTHEAST UTILITIES

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

The idea behind Algonquin Power Utilities and NORTHEAST UTILITIES 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 Transaction History module to view history of all your transactions and understand their impact on performance.