Correlation Between Canadian Utilities and Archer Daniels

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

Diversification Opportunities for Canadian Utilities and Archer Daniels

0.31

Correlation Coefficient

Canadian Utilities  Archer Daniels

Weak diversification

The 3 months correlation between Canadian and Archer is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Archer Daniels Midland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archer Daniels Midland 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 Archer Daniels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archer Daniels Midland has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Archer Daniels go up and down completely randomly.

Pair Corralation between Canadian Utilities and Archer Daniels

Assuming the 90 days horizon Canadian Utilities is expected to generate 2.15 times less return on investment than Archer Daniels. But when comparing it to its historical volatility, Canadian Utilities Limited is 1.44 times less risky than Archer Daniels. It trades about 0.12 of its potential returns per unit of risk. Archer Daniels Midland is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,788  in Archer Daniels Midland on October 23, 2024 and sell it today you would earn a total of  160.00  from holding Archer Daniels Midland or generate 3.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.12%
Values	Daily Returns

Canadian Utilities Limited  vs.  Archer Daniels Midland

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Archer Daniels Midland

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archer Daniels Midland has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Archer Daniels is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Canadian Utilities and Archer Daniels

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

The idea behind Canadian Utilities Limited and Archer Daniels Midland 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.