Correlation Between Algonquin Power and Hennessy Gas

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

Diversification Opportunities for Algonquin Power and Hennessy Gas

-0.54

Correlation Coefficient

Algonquin Power  Hennessy Gas

Excellent diversification

The 3 months correlation between Algonquin and Hennessy is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Hennessy Gas Utility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Gas Utility 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 Hennessy Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Gas Utility has no effect on the direction of Algonquin Power i.e., Algonquin Power and Hennessy Gas go up and down completely randomly.

Pair Corralation between Algonquin Power and Hennessy Gas

Considering the 90-day investment horizon Algonquin Power Utilities is expected to under-perform the Hennessy Gas. In addition to that, Algonquin Power is 2.21 times more volatile than Hennessy Gas Utility. It trades about -0.03 of its total potential returns per unit of risk. Hennessy Gas Utility is currently generating about 0.08 per unit of volatility. If you would invest  2,282  in Hennessy Gas Utility on September 15, 2024 and sell it today you would earn a total of  423.00  from holding Hennessy Gas Utility or generate 18.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.63%
Values	Daily Returns

Algonquin Power Utilities  vs.  Hennessy Gas Utility

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 unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hennessy Gas Utility

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hennessy Gas Utility are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Hennessy Gas is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Algonquin Power and Hennessy Gas

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

The idea behind Algonquin Power Utilities and Hennessy Gas Utility 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.