Correlation Between Hydro One and Caribbean Utilities

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

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

Diversification Opportunities for Hydro One and Caribbean Utilities

-0.17

Correlation Coefficient

Hydro One  Caribbean Utilities

Good diversification

The 3 months correlation between Hydro and Caribbean is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Hydro One and Caribbean Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caribbean Utilities and Hydro One 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 Hydro One are associated (or correlated) with Caribbean Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caribbean Utilities has no effect on the direction of Hydro One i.e., Hydro One and Caribbean Utilities go up and down completely randomly.

Pair Corralation between Hydro One and Caribbean Utilities

Given the investment horizon of 90 days Hydro One is expected to generate 0.81 times more return on investment than Caribbean Utilities. However, Hydro One is 1.23 times less risky than Caribbean Utilities. It trades about -0.02 of its potential returns per unit of risk. Caribbean Utilities is currently generating about -0.07 per unit of risk. If you would invest  4,579  in Hydro One on November 29, 2024 and sell it today you would lose (49.00) from holding Hydro One or give up 1.07% of portfolio value over 90 days.

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

Hydro One  vs.  Caribbean Utilities

Hydro One

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hydro One has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Hydro One is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with Hydro One and Caribbean Utilities

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

The idea behind Hydro One and Caribbean 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.