Correlation Between Canadian Utilities and Algonquin Power

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

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

Diversification Opportunities for Canadian Utilities and Algonquin Power

0.87

Correlation Coefficient

Canadian Utilities  Algonquin Power

Very poor diversification

The 3 months correlation between Canadian and Algonquin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited 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 Canadian Utilities 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 Canadian Utilities Limited 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 Canadian Utilities i.e., Canadian Utilities and Algonquin Power go up and down completely randomly.

Pair Corralation between Canadian Utilities and Algonquin Power

Assuming the 90 days horizon Canadian Utilities is expected to generate 2.44 times less return on investment than Algonquin Power. But when comparing it to its historical volatility, Canadian Utilities Limited is 2.02 times less risky than Algonquin Power. It trades about 0.14 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  632.00  in Algonquin Power Utilities on December 30, 2024 and sell it today you would earn a total of  110.00  from holding Algonquin Power Utilities or generate 17.41% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Algonquin Power Utilities

Canadian Utilities

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canadian Utilities may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Algonquin Power Utilities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Algonquin Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Utilities and Algonquin Power

The main advantage of trading using opposite Canadian Utilities and Algonquin Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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 Canadian Utilities Limited 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.