Correlation Between Hydro One and Fortis

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

By analyzing existing cross correlation between Hydro One and Fortis Pref M, you can compare the effects of market volatilities on Hydro One and Fortis 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 Fortis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hydro One and Fortis.

Diversification Opportunities for Hydro One and Fortis

-0.5

Correlation Coefficient

Hydro One  Fortis

Very good diversification

The 3 months correlation between Hydro and Fortis is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hydro One and Fortis Pref M in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortis Pref M 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 Fortis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortis Pref M has no effect on the direction of Hydro One i.e., Hydro One and Fortis go up and down completely randomly.

Pair Corralation between Hydro One and Fortis

Given the investment horizon of 90 days Hydro One is expected to under-perform the Fortis. In addition to that, Hydro One is 1.61 times more volatile than Fortis Pref M. It trades about -0.02 of its total potential returns per unit of risk. Fortis Pref M is currently generating about 0.08 per unit of volatility. If you would invest  2,070  in Fortis Pref M on November 29, 2024 and sell it today you would earn a total of  57.00  from holding Fortis Pref M or generate 2.75% return on investment over 90 days.

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

Hydro One  vs.  Fortis Pref M

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.

Fortis Pref M

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Pref M are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Fortis is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hydro One and Fortis

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

The idea behind Hydro One and Fortis Pref M 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.