Correlation Between TransAlta Corp and Fortis

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

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

Diversification Opportunities for TransAlta Corp and Fortis

-0.1

Correlation Coefficient

TransAlta Corp  Fortis

Good diversification

The 3 months correlation between TransAlta and Fortis is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding TransAlta Corp and Fortis Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortis Inc and TransAlta 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 TransAlta Corp 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 Inc has no effect on the direction of TransAlta Corp i.e., TransAlta Corp and Fortis go up and down completely randomly.

Pair Corralation between TransAlta Corp and Fortis

Assuming the 90 days horizon TransAlta Corp is expected to generate 2.21 times more return on investment than Fortis. However, TransAlta Corp is 2.21 times more volatile than Fortis Inc. It trades about 0.31 of its potential returns per unit of risk. Fortis Inc is currently generating about -0.35 per unit of risk. If you would invest  1,847  in TransAlta Corp on October 9, 2024 and sell it today you would earn a total of  167.00  from holding TransAlta Corp or generate 9.04% return on investment over 90 days.

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

TransAlta Corp  vs.  Fortis Inc

TransAlta Corp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TransAlta Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Fortis Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Fortis is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with TransAlta Corp and Fortis

The main advantage of trading using opposite TransAlta Corp and Fortis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TransAlta Corp 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 TransAlta Corp and Fortis Inc 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.