Correlation Between Aecon and Northland Power

Can any of the company-specific risk be diversified away by investing in both Aecon and Northland Power 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 Aecon and Northland Power into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aecon Group and Northland Power, you can compare the effects of market volatilities on Aecon and Northland Power 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 Aecon with a short position of Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aecon and Northland Power.

Diversification Opportunities for Aecon and Northland Power

-0.63

Correlation Coefficient

Aecon  Northland Power

Excellent diversification

The 3 months correlation between Aecon and Northland is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aecon Group and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Aecon 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 Aecon Group are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Aecon i.e., Aecon and Northland Power go up and down completely randomly.

Pair Corralation between Aecon and Northland Power

Assuming the 90 days trading horizon Aecon Group is expected to under-perform the Northland Power. In addition to that, Aecon is 1.49 times more volatile than Northland Power. It trades about -0.21 of its total potential returns per unit of risk. Northland Power is currently generating about 0.1 per unit of volatility. If you would invest  1,760  in Northland Power on December 30, 2024 and sell it today you would earn a total of  207.00  from holding Northland Power or generate 11.76% return on investment over 90 days.

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

Aecon Group  vs.  Northland Power

Aecon Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aecon Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and 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.

Northland Power

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Northland Power may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aecon and Northland Power

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

The idea behind Aecon Group and Northland Power 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.