Correlation Between Copart and Algonquin Power

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

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

Diversification Opportunities for Copart and Algonquin Power

-0.08

Correlation Coefficient

Copart  Algonquin Power

Good diversification

The 3 months correlation between Copart and Algonquin is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Copart Inc and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities and Copart 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 Copart Inc are associated (or correlated) with Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Copart i.e., Copart and Algonquin Power go up and down completely randomly.

Pair Corralation between Copart and Algonquin Power

Assuming the 90 days horizon Copart Inc is expected to under-perform the Algonquin Power. But the stock apears to be less risky and, when comparing its historical volatility, Copart Inc is 1.59 times less risky than Algonquin Power. The stock trades about -0.07 of its potential returns per unit of risk. The Algonquin Power Utilities is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  420.00  in Algonquin Power Utilities on October 22, 2024 and sell it today you would earn a total of  6.00  from holding Algonquin Power Utilities or generate 1.43% return on investment over 90 days.

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

Copart Inc  vs.  Algonquin Power Utilities

Copart Inc

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Copart Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Copart reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Copart and Algonquin Power

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

The idea behind Copart Inc and Algonquin Power Utilities 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.