Correlation Between Telus Corp and Northland Power

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

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

Diversification Opportunities for Telus Corp and Northland Power

0.35

Correlation Coefficient

Telus Corp  Northland Power

Weak diversification

The 3 months correlation between Telus and Northland is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Telus Corp and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Telus Corp 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 Telus Corp are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Telus Corp i.e., Telus Corp and Northland Power go up and down completely randomly.

Pair Corralation between Telus Corp and Northland Power

Given the investment horizon of 90 days Telus Corp is expected to generate 2.45 times less return on investment than Northland Power. But when comparing it to its historical volatility, Telus Corp is 1.46 times less risky than Northland Power. It trades about 0.06 of its potential returns per unit of risk. Northland Power is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,793  in Northland Power on December 24, 2024 and sell it today you would earn a total of  213.00  from holding Northland Power or generate 11.88% return on investment over 90 days.

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

Telus Corp  vs.  Northland Power

Telus Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telus Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Telus Corp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Northland Power

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Northland Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telus Corp and Northland Power

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

The idea behind Telus Corp and Northland Power 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.