Correlation Between Canadian Utilities and Fortis

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

Diversification Opportunities for Canadian Utilities and Fortis

0.42

Correlation Coefficient

Canadian Utilities  Fortis

Very weak diversification

The 3 months correlation between Canadian and Fortis is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Fortis Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortis Inc 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 Fortis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortis Inc has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Fortis go up and down completely randomly.

Pair Corralation between Canadian Utilities and Fortis

Assuming the 90 days horizon Canadian Utilities Limited is expected to generate 0.73 times more return on investment than Fortis. However, Canadian Utilities Limited is 1.37 times less risky than Fortis. It trades about 0.32 of its potential returns per unit of risk. Fortis Inc is currently generating about 0.18 per unit of risk. If you would invest  3,333  in Canadian Utilities Limited on November 29, 2024 and sell it today you would earn a total of  156.00  from holding Canadian Utilities Limited or generate 4.68% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Fortis Inc

Canadian Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Utilities is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fortis Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Fortis is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Canadian Utilities and Fortis

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

The idea behind Canadian Utilities Limited and Fortis Inc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.