Correlation Between AGL Energy and TransAlta Corp

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

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

Diversification Opportunities for AGL Energy and TransAlta Corp

-0.14

Correlation Coefficient

AGL Energy  TransAlta Corp

Good diversification

The 3 months correlation between AGL and TransAlta is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding AGL Energy and TransAlta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Corp and AGL Energy 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 AGL Energy are associated (or correlated) with TransAlta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Corp has no effect on the direction of AGL Energy i.e., AGL Energy and TransAlta Corp go up and down completely randomly.

Pair Corralation between AGL Energy and TransAlta Corp

Assuming the 90 days horizon AGL Energy is expected to under-perform the TransAlta Corp. In addition to that, AGL Energy is 1.22 times more volatile than TransAlta Corp. It trades about 0.0 of its total potential returns per unit of risk. TransAlta Corp is currently generating about 0.23 per unit of volatility. If you would invest  1,103  in TransAlta Corp on September 6, 2024 and sell it today you would earn a total of  176.00  from holding TransAlta Corp or generate 15.96% return on investment over 90 days.

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

AGL Energy  vs.  TransAlta Corp

AGL Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AGL Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

TransAlta Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, TransAlta Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AGL Energy and TransAlta Corp

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

The idea behind AGL Energy and TransAlta Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.