Correlation Between Algonquin Power and Northland Power
Can any of the company-specific risk be diversified away by investing in both Algonquin Power 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 Algonquin Power and Northland Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Algonquin Power Utilities and Northland Power, you can compare the effects of market volatilities on Algonquin Power 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 Algonquin Power with a short position of Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algonquin Power and Northland Power.
Diversification Opportunities for Algonquin Power and Northland Power
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Algonquin and Northland is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Algonquin Power 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 Algonquin Power Utilities 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 Algonquin Power i.e., Algonquin Power and Northland Power go up and down completely randomly.
Pair Corralation between Algonquin Power and Northland Power
Assuming the 90 days trading horizon Algonquin Power Utilities is expected to generate 0.67 times more return on investment than Northland Power. However, Algonquin Power Utilities is 1.49 times less risky than Northland Power. It trades about -0.13 of its potential returns per unit of risk. Northland Power is currently generating about -0.22 per unit of risk. If you would invest 696.00 in Algonquin Power Utilities on August 24, 2024 and sell it today you would lose (30.00) from holding Algonquin Power Utilities or give up 4.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Algonquin Power Utilities vs. Northland Power
Performance |
| Timeline |
| Algonquin Power Utilities |
| Northland Power |
Algonquin Power and Northland Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Algonquin Power and Northland Power
The main advantage of trading using opposite Algonquin Power and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power 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.| Algonquin Power vs. Maxim Power Corp | Algonquin Power vs. Forstrong Global Income | Algonquin Power vs. BMO Aggregate Bond | Algonquin Power vs. iShares Canadian HYBrid |
| Northland Power vs. Brookfield Renewable Partners | Northland Power vs. Algonquin Power Utilities | Northland Power vs. Innergex Renewable Energy | Northland Power vs. Capital Power |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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