Correlation Between Diamond Estates and Algonquin Power

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

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

Diversification Opportunities for Diamond Estates and Algonquin Power

0.04

Correlation Coefficient

Diamond Estates  Algonquin Power

Significant diversification

The 3 months correlation between Diamond and Algonquin is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Estates Wines 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 Diamond Estates 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 Diamond Estates Wines 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 Diamond Estates i.e., Diamond Estates and Algonquin Power go up and down completely randomly.

Pair Corralation between Diamond Estates and Algonquin Power

Assuming the 90 days horizon Diamond Estates Wines is expected to under-perform the Algonquin Power. In addition to that, Diamond Estates is 5.62 times more volatile than Algonquin Power Utilities. It trades about -0.01 of its total potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.08 per unit of volatility. If you would invest  1,734  in Algonquin Power Utilities on September 30, 2024 and sell it today you would earn a total of  687.00  from holding Algonquin Power Utilities or generate 39.62% return on investment over 90 days.

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

Diamond Estates Wines  vs.  Algonquin Power Utilities

Diamond Estates Wines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Estates Wines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Algonquin Power Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Algonquin Power is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diamond Estates and Algonquin Power

The main advantage of trading using opposite Diamond Estates and Algonquin Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Estates 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 Diamond Estates Wines 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.