Correlation Between Algonquin Power and Uniteds

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

Diversification Opportunities for Algonquin Power and Uniteds

-0.74

Correlation Coefficient

Algonquin Power  Uniteds

Pay attention - limited upside

The 3 months correlation between Algonquin and Uniteds is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Uniteds Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uniteds Limited 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 Uniteds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uniteds Limited has no effect on the direction of Algonquin Power i.e., Algonquin Power and Uniteds go up and down completely randomly.

Pair Corralation between Algonquin Power and Uniteds

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to under-perform the Uniteds. In addition to that, Algonquin Power is 2.44 times more volatile than Uniteds Limited. It trades about -0.13 of its total potential returns per unit of risk. Uniteds Limited is currently generating about -0.11 per unit of volatility. If you would invest  13,175  in Uniteds Limited on October 9, 2024 and sell it today you would lose (175.00) from holding Uniteds Limited or give up 1.33% of portfolio value over 90 days.

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

Algonquin Power Utilities  vs.  Uniteds Limited

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.

Uniteds Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Uniteds Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Uniteds is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Algonquin Power and Uniteds

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

The idea behind Algonquin Power Utilities and Uniteds Limited 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.