Correlation Between AES and Northland Power
Can any of the company-specific risk be diversified away by investing in both AES 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 AES and Northland Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The AES and Northland Power, you can compare the effects of market volatilities on AES 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 AES with a short position of Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES and Northland Power.
Diversification Opportunities for AES and Northland Power
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between AES and Northland is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and AES 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 The AES 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 AES i.e., AES and Northland Power go up and down completely randomly.
Pair Corralation between AES and Northland Power
Considering the 90-day investment horizon The AES is expected to under-perform the Northland Power. In addition to that, AES is 1.22 times more volatile than Northland Power. It trades about -0.25 of its total potential returns per unit of risk. Northland Power is currently generating about -0.15 per unit of volatility. If you would invest 1,533 in Northland Power on September 5, 2024 and sell it today you would lose (112.00) from holding Northland Power or give up 7.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The AES vs. Northland Power
Performance |
| Timeline |
| AES |
| Northland Power |
AES and Northland Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AES and Northland Power
The main advantage of trading using opposite AES and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AES 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 The AES 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.| Northland Power vs. Energy of Minas | Northland Power vs. The AES | Northland Power vs. Sempra Energy | Northland Power vs. Iberdrola SA |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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