Correlation Between Hydro One and Fortis Pref

Can any of the company-specific risk be diversified away by investing in both Hydro One and Fortis Pref 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 Pref 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 Pref 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 Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hydro One and Fortis Pref.

Diversification Opportunities for Hydro One and Fortis Pref

0.5

Correlation Coefficient

Hydro One  Fortis Pref

Very weak 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 Pref. 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 Pref go up and down completely randomly.

Pair Corralation between Hydro One and Fortis Pref

Given the investment horizon of 90 days Hydro One is expected to generate 1.93 times more return on investment than Fortis Pref. However, Hydro One is 1.93 times more volatile than Fortis Pref M. It trades about 0.14 of its potential returns per unit of risk. Fortis Pref M is currently generating about 0.13 per unit of risk. If you would invest  4,430  in Hydro One on December 30, 2024 and sell it today you would earn a total of  373.00  from holding Hydro One or generate 8.42% return on investment over 90 days.

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

Hydro One  vs.  Fortis Pref M

Hydro One

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hydro One are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Hydro One may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Fortis Pref M

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Pref M are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Fortis Pref is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hydro One and Fortis Pref

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

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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.