Correlation Between Algonquin Power and ECN Capital

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

Diversification Opportunities for Algonquin Power and ECN Capital

-0.64

Correlation Coefficient

Algonquin Power  ECN Capital

Excellent diversification

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

Pair Corralation between Algonquin Power and ECN Capital

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to under-perform the ECN Capital. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 2.88 times less risky than ECN Capital. The stock trades about -0.02 of its potential returns per unit of risk. The ECN Capital Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  212.00  in ECN Capital Corp on September 3, 2024 and sell it today you would earn a total of  69.00  from holding ECN Capital Corp or generate 32.55% 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.  ECN Capital Corp

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 very healthy basic indicators, Algonquin Power is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

ECN Capital Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ECN Capital Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, ECN Capital displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algonquin Power and ECN Capital

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

The idea behind Algonquin Power Utilities and ECN Capital 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.

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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.