Correlation Between Power Assets and AGL Energy

Can any of the company-specific risk be diversified away by investing in both Power Assets and AGL Energy 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 AGL Energy 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 AGL Energy, you can compare the effects of market volatilities on Power Assets and AGL Energy 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 AGL Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Assets and AGL Energy.

Diversification Opportunities for Power Assets and AGL Energy

0.3

Correlation Coefficient

Power Assets  AGL Energy

Weak diversification

The 3 months correlation between Power and AGL is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Power Assets Holdings and AGL Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGL Energy 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 AGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGL Energy has no effect on the direction of Power Assets i.e., Power Assets and AGL Energy go up and down completely randomly.

Pair Corralation between Power Assets and AGL Energy

Assuming the 90 days horizon Power Assets Holdings is expected to generate 0.58 times more return on investment than AGL Energy. However, Power Assets Holdings is 1.71 times less risky than AGL Energy. It trades about 0.06 of its potential returns per unit of risk. AGL Energy is currently generating about -0.06 per unit of risk. If you would invest  674.00  in Power Assets Holdings on November 28, 2024 and sell it today you would earn a total of  20.00  from holding Power Assets Holdings or generate 2.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	64.41%
Values	Daily Returns

Power Assets Holdings  vs.  AGL Energy

Power Assets Holdings

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Assets Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Power Assets is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

AGL Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days AGL Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Power Assets and AGL Energy

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

The idea behind Power Assets Holdings and AGL Energy 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.