Correlation Between Fortis and Canadian Utilities

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

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

Diversification Opportunities for Fortis and Canadian Utilities

0.6

Correlation Coefficient

Fortis  Canadian Utilities

Poor diversification

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

Pair Corralation between Fortis and Canadian Utilities

Assuming the 90 days trading horizon Fortis is expected to generate 1.43 times less return on investment than Canadian Utilities. But when comparing it to its historical volatility, Fortis Inc is 1.08 times less risky than Canadian Utilities. It trades about 0.09 of its potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,365  in Canadian Utilities Limited on September 2, 2024 and sell it today you would earn a total of  229.00  from holding Canadian Utilities Limited or generate 6.81% return on investment over 90 days.

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

Fortis Inc  vs.  Canadian Utilities Limited

Fortis Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 7 (%) 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.

Canadian Utilities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canadian Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fortis and Canadian Utilities

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

The idea behind Fortis Inc and Canadian Utilities Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.