Correlation Between Algonquin Power and Emera Pref

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

Diversification Opportunities for Algonquin Power and Emera Pref

0.64

Correlation Coefficient

Algonquin Power  Emera Pref

Poor diversification

The 3 months correlation between Algonquin and Emera is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Emera Pref A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emera Pref A 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 Emera Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emera Pref A has no effect on the direction of Algonquin Power i.e., Algonquin Power and Emera Pref go up and down completely randomly.

Pair Corralation between Algonquin Power and Emera Pref

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to under-perform the Emera Pref. But the preferred stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.05 times less risky than Emera Pref. The preferred stock trades about -0.03 of its potential returns per unit of risk. The Emera Pref A is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  1,605  in Emera Pref A on October 14, 2024 and sell it today you would earn a total of  95.00  from holding Emera Pref A or generate 5.92% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Emera Pref A

Algonquin Power Utilities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Algonquin Power is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Emera Pref A

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emera Pref A are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Emera Pref may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Algonquin Power and Emera Pref

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

The idea behind Algonquin Power Utilities and Emera Pref A 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.