Correlation Between Algonquin Power and Exco Technologies

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

Diversification Opportunities for Algonquin Power and Exco Technologies

-0.89

Correlation Coefficient

Algonquin Power  Exco Technologies

Pay attention - limited upside

The 3 months correlation between Algonquin and Exco is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Exco Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exco Technologies 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 Exco Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exco Technologies has no effect on the direction of Algonquin Power i.e., Algonquin Power and Exco Technologies go up and down completely randomly.

Pair Corralation between Algonquin Power and Exco Technologies

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to generate 1.14 times more return on investment than Exco Technologies. However, Algonquin Power is 1.14 times more volatile than Exco Technologies Limited. It trades about 0.17 of its potential returns per unit of risk. Exco Technologies Limited is currently generating about -0.24 per unit of risk. If you would invest  632.00  in Algonquin Power Utilities on December 30, 2024 and sell it today you would earn a total of  110.00  from holding Algonquin Power Utilities or generate 17.41% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Exco Technologies Limited

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 13 (%) 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.

Exco Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exco Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Algonquin Power and Exco Technologies

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

The idea behind Algonquin Power Utilities and Exco Technologies 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.