Correlation Between ATCO and Canadian Utilities

Can any of the company-specific risk be diversified away by investing in both ATCO and Canadian 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 ATCO and Canadian Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ATCO and Canadian Utilities Limited, you can compare the effects of market volatilities on ATCO and Canadian 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 ATCO with a short position of Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATCO and Canadian Utilities.

Diversification Opportunities for ATCO and Canadian Utilities

0.82

Correlation Coefficient

ATCO  Canadian Utilities

Very poor diversification

The 3 months correlation between ATCO and Canadian is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding ATCO and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and ATCO 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 ATCO are associated (or correlated) with Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of ATCO i.e., ATCO and Canadian Utilities go up and down completely randomly.

Pair Corralation between ATCO and Canadian Utilities

Assuming the 90 days trading horizon ATCO is expected to generate 1.05 times more return on investment than Canadian Utilities. However, ATCO is 1.05 times more volatile than Canadian Utilities Limited. It trades about 0.15 of its potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.12 per unit of risk. If you would invest  4,518  in ATCO on September 2, 2024 and sell it today you would earn a total of  396.00  from holding ATCO or generate 8.76% return on investment over 90 days.

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

ATCO  vs.  Canadian Utilities Limited

ATCO

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ATCO are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, ATCO may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Canadian Utilities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canadian Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ATCO and Canadian Utilities

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

The idea behind ATCO and Canadian Utilities Limited 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.