Correlation Between Algonquin Power and TransAlta Renewables

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

Diversification Opportunities for Algonquin Power and TransAlta Renewables

-0.58

Correlation Coefficient

Algonquin Power  TransAlta Renewables

Excellent diversification

The 3 months correlation between Algonquin and TransAlta is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and TransAlta Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Renewables 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 TransAlta Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Renewables has no effect on the direction of Algonquin Power i.e., Algonquin Power and TransAlta Renewables go up and down completely randomly.

Pair Corralation between Algonquin Power and TransAlta Renewables

If you would invest  1,020  in TransAlta Renewables on September 16, 2024 and sell it today you would earn a total of  0.00  from holding TransAlta Renewables or generate 0.0% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  TransAlta Renewables

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 comparatively stable basic indicators, Algonquin Power is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

TransAlta Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TransAlta Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TransAlta Renewables is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Algonquin Power and TransAlta Renewables

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

The idea behind Algonquin Power Utilities and TransAlta Renewables 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.