Correlation Between Georgia Power and TransAlta Corp

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

By analyzing existing cross correlation between Georgia Power Co and TransAlta Corp, you can compare the effects of market volatilities on Georgia Power and TransAlta Corp 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 Georgia Power with a short position of TransAlta Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Georgia Power and TransAlta Corp.

Diversification Opportunities for Georgia Power and TransAlta Corp

-0.79

Correlation Coefficient

Georgia Power  TransAlta Corp

Pay attention - limited upside

The 3 months correlation between Georgia and TransAlta is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Georgia Power Co and TransAlta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Corp and Georgia Power 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 Georgia Power Co are associated (or correlated) with TransAlta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Corp has no effect on the direction of Georgia Power i.e., Georgia Power and TransAlta Corp go up and down completely randomly.

Pair Corralation between Georgia Power and TransAlta Corp

Given the investment horizon of 90 days Georgia Power Co is expected to under-perform the TransAlta Corp. But the stock apears to be less risky and, when comparing its historical volatility, Georgia Power Co is 3.13 times less risky than TransAlta Corp. The stock trades about -0.06 of its potential returns per unit of risk. The TransAlta Corp is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  1,153  in TransAlta Corp on October 4, 2024 and sell it today you would earn a total of  255.00  from holding TransAlta Corp or generate 22.12% return on investment over 90 days.

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

Georgia Power Co  vs.  TransAlta Corp

Georgia Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Georgia Power Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

TransAlta Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, TransAlta Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Georgia Power and TransAlta Corp

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

The idea behind Georgia Power Co and TransAlta Corp 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.