Correlation Between TransAlta Corp and AGL Energy

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

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

Diversification Opportunities for TransAlta Corp and AGL Energy

-0.31

Correlation Coefficient

TransAlta Corp  AGL Energy

Very good diversification

The 3 months correlation between TransAlta and AGL is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding TransAlta Corp and AGL Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGL Energy 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 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 TransAlta Corp i.e., TransAlta Corp and AGL Energy go up and down completely randomly.

Pair Corralation between TransAlta Corp and AGL Energy

Considering the 90-day investment horizon TransAlta Corp is expected to generate 0.71 times more return on investment than AGL Energy. However, TransAlta Corp is 1.4 times less risky than AGL Energy. It trades about 0.27 of its potential returns per unit of risk. AGL Energy is currently generating about -0.04 per unit of risk. If you would invest  901.00  in TransAlta Corp on September 8, 2024 and sell it today you would earn a total of  447.00  from holding TransAlta Corp or generate 49.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

TransAlta Corp  vs.  AGL Energy

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 rather unfluctuating basic indicators, TransAlta Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

AGL Energy

Risk-Adjusted Performance

0 of 100

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 TransAlta Corp and AGL Energy

The main advantage of trading using opposite TransAlta Corp and AGL Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TransAlta Corp 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 TransAlta Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.