Correlation Between Caribbean Utilities and Hydro One

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

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

Diversification Opportunities for Caribbean Utilities and Hydro One

-0.6

Correlation Coefficient

Caribbean Utilities  Hydro One

Excellent diversification

The 3 months correlation between Caribbean and Hydro is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Caribbean Utilities and Hydro One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hydro One and Caribbean 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 Caribbean Utilities are associated (or correlated) with Hydro One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hydro One has no effect on the direction of Caribbean Utilities i.e., Caribbean Utilities and Hydro One go up and down completely randomly.

Pair Corralation between Caribbean Utilities and Hydro One

Assuming the 90 days trading horizon Caribbean Utilities is expected to under-perform the Hydro One. In addition to that, Caribbean Utilities is 1.13 times more volatile than Hydro One. It trades about -0.08 of its total potential returns per unit of risk. Hydro One is currently generating about 0.14 per unit of volatility. If you would invest  4,427  in Hydro One on December 31, 2024 and sell it today you would earn a total of  376.00  from holding Hydro One or generate 8.49% return on investment over 90 days.

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

Caribbean Utilities  vs.  Hydro One

Caribbean Utilities

Risk-Adjusted Performance

Very Weak

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

Hydro One

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hydro One are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Hydro One may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with Caribbean Utilities and Hydro One

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

The idea behind Caribbean Utilities and Hydro One 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.