Correlation Between Fortis 1St and Hydro One

Can any of the company-specific risk be diversified away by investing in both Fortis 1St 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 Fortis 1St and Hydro One into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fortis 1St Cum and Hydro One, you can compare the effects of market volatilities on Fortis 1St 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 Fortis 1St with a short position of Hydro One. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortis 1St and Hydro One.

Diversification Opportunities for Fortis 1St and Hydro One

0.42

Correlation Coefficient

Fortis 1St  Hydro One

Very weak diversification

The 3 months correlation between Fortis and Hydro is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Fortis 1St Cum and Hydro One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hydro One and Fortis 1St 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 Fortis 1St Cum 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 Fortis 1St i.e., Fortis 1St and Hydro One go up and down completely randomly.

Pair Corralation between Fortis 1St and Hydro One

Assuming the 90 days trading horizon Fortis 1St Cum is expected to under-perform the Hydro One. But the preferred stock apears to be less risky and, when comparing its historical volatility, Fortis 1St Cum is 1.6 times less risky than Hydro One. The preferred stock trades about -0.08 of its potential returns per unit of risk. The Hydro One is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,585  in Hydro One on September 4, 2024 and sell it today you would earn a total of  38.00  from holding Hydro One or generate 0.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Fortis 1St Cum  vs.  Hydro One

Fortis 1St Cum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortis 1St Cum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fortis 1St is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Hydro One

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hydro One are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Hydro One is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fortis 1St and Hydro One

The main advantage of trading using opposite Fortis 1St and Hydro One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortis 1St 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 Fortis 1St Cum 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.