Correlation Between Algonquin Power and Newtopia

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

Diversification Opportunities for Algonquin Power and Newtopia

0.47

Correlation Coefficient

Algonquin Power  Newtopia

Very weak diversification

The 3 months correlation between Algonquin and Newtopia is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Newtopia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtopia 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 Newtopia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtopia has no effect on the direction of Algonquin Power i.e., Algonquin Power and Newtopia go up and down completely randomly.

Pair Corralation between Algonquin Power and Newtopia

If you would invest  0.50  in Newtopia on October 24, 2024 and sell it today you would earn a total of  0.00  from holding Newtopia or generate 0.0% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Newtopia

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.

Newtopia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Newtopia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Newtopia is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Algonquin Power and Newtopia

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

The idea behind Algonquin Power Utilities and Newtopia 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.