Correlation Between Power Assets and Algonquin Power

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

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

Diversification Opportunities for Power Assets and Algonquin Power

-0.69

Correlation Coefficient

Power Assets  Algonquin Power

Excellent diversification

The 3 months correlation between Power and Algonquin is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Power Assets Holdings and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities and Power Assets 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 Power Assets Holdings are associated (or correlated) with Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Power Assets i.e., Power Assets and Algonquin Power go up and down completely randomly.

Pair Corralation between Power Assets and Algonquin Power

Assuming the 90 days horizon Power Assets Holdings is expected to generate 0.76 times more return on investment than Algonquin Power. However, Power Assets Holdings is 1.31 times less risky than Algonquin Power. It trades about 0.35 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.31 per unit of risk. If you would invest  615.00  in Power Assets Holdings on October 3, 2024 and sell it today you would earn a total of  45.00  from holding Power Assets Holdings or generate 7.32% return on investment over 90 days.

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

Power Assets Holdings  vs.  Algonquin Power Utilities

Power Assets Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Power Assets Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Power Assets reported solid returns over the last few months and may actually be approaching a breakup point.

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Power Assets and Algonquin Power

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

The idea behind Power Assets Holdings and Algonquin Power 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.