Correlation Between Algonquin Power and CHINA SOUTHN

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

Diversification Opportunities for Algonquin Power and CHINA SOUTHN

-0.65

Correlation Coefficient

Algonquin Power  CHINA SOUTHN

Excellent diversification

The 3 months correlation between Algonquin and CHINA is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR 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 CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of Algonquin Power i.e., Algonquin Power and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between Algonquin Power and CHINA SOUTHN

Assuming the 90 days horizon Algonquin Power Utilities is expected to generate 0.55 times more return on investment than CHINA SOUTHN. However, Algonquin Power Utilities is 1.81 times less risky than CHINA SOUTHN. It trades about 0.04 of its potential returns per unit of risk. CHINA SOUTHN AIR H is currently generating about -0.01 per unit of risk. If you would invest  435.00  in Algonquin Power Utilities on December 6, 2024 and sell it today you would earn a total of  12.00  from holding Algonquin Power Utilities or generate 2.76% 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.  CHINA SOUTHN AIR H

Algonquin Power Utilities

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Algonquin Power is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

CHINA SOUTHN AIR

Risk-Adjusted Performance

Very Weak

Over the last 90 days CHINA SOUTHN AIR H has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CHINA SOUTHN is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Algonquin Power and CHINA SOUTHN

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

The idea behind Algonquin Power Utilities and CHINA SOUTHN AIR H 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.