Correlation Between Algonquin Power and ATCO

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

Diversification Opportunities for Algonquin Power and ATCO

0.07

Correlation Coefficient

Algonquin Power  ATCO

Significant diversification

The 3 months correlation between Algonquin and ATCO is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and ATCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATCO 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 ATCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATCO has no effect on the direction of Algonquin Power i.e., Algonquin Power and ATCO go up and down completely randomly.

Pair Corralation between Algonquin Power and ATCO

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to under-perform the ATCO. In addition to that, Algonquin Power is 1.57 times more volatile than ATCO. It trades about -0.12 of its total potential returns per unit of risk. ATCO is currently generating about -0.06 per unit of volatility. If you would invest  4,864  in ATCO on September 27, 2024 and sell it today you would lose (122.00) from holding ATCO or give up 2.51% of portfolio value over 90 days.

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

Algonquin Power Utilities  vs.  ATCO

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. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

ATCO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ATCO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ATCO 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 ATCO

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

The idea behind Algonquin Power Utilities and ATCO 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.