Correlation Between Algonquin Power and Fluence Energy

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

Diversification Opportunities for Algonquin Power and Fluence Energy

0.07

Correlation Coefficient

Algonquin Power  Fluence Energy

Significant diversification

The 3 months correlation between Algonquin and Fluence is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Fluence Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fluence Energy 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 Fluence Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fluence Energy has no effect on the direction of Algonquin Power i.e., Algonquin Power and Fluence Energy go up and down completely randomly.

Pair Corralation between Algonquin Power and Fluence Energy

Considering the 90-day investment horizon Algonquin Power Utilities is expected to under-perform the Fluence Energy. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 3.38 times less risky than Fluence Energy. The stock trades about -0.08 of its potential returns per unit of risk. The Fluence Energy is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,734  in Fluence Energy on August 31, 2024 and sell it today you would earn a total of  103.00  from holding Fluence Energy or generate 5.94% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Fluence Energy

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 latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Fluence Energy

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fluence Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Fluence Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algonquin Power and Fluence Energy

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

The idea behind Algonquin Power Utilities and Fluence Energy 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.