Correlation Between Algonquin Power and Canadian Life

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

Diversification Opportunities for Algonquin Power and Canadian Life

-0.36

Correlation Coefficient

Algonquin Power  Canadian Life

Very good diversification

The 3 months correlation between Algonquin and Canadian is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Canadian Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Life Companies 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 Canadian Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Life Companies has no effect on the direction of Algonquin Power i.e., Algonquin Power and Canadian Life go up and down completely randomly.

Pair Corralation between Algonquin Power and Canadian Life

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to generate 0.75 times more return on investment than Canadian Life. However, Algonquin Power Utilities is 1.34 times less risky than Canadian Life. It trades about 0.16 of its potential returns per unit of risk. Canadian Life Companies is currently generating about -0.08 per unit of risk. If you would invest  633.00  in Algonquin Power Utilities on December 24, 2024 and sell it today you would earn a total of  101.00  from holding Algonquin Power Utilities 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

Algonquin Power Utilities  vs.  Canadian Life Companies

Algonquin Power Utilities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Algonquin Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Life Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Life Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Algonquin Power and Canadian Life

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

The idea behind Algonquin Power Utilities and Canadian Life Companies 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.