Correlation Between Algonquin Power and Clearway Energy

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Can any of the company-specific risk be diversified away by investing in both Algonquin Power and Clearway 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 Algonquin Power and Clearway Energy 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 Clearway Energy Class, you can compare the effects of market volatilities on Algonquin Power and Clearway 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 Algonquin Power with a short position of Clearway Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algonquin Power and Clearway Energy.

Diversification Opportunities for Algonquin Power and Clearway Energy

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Algonquin and Clearway is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Clearway Energy Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearway Energy Class 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 Clearway Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearway Energy Class has no effect on the direction of Algonquin Power i.e., Algonquin Power and Clearway Energy go up and down completely randomly.

Pair Corralation between Algonquin Power and Clearway Energy

Considering the 90-day investment horizon Algonquin Power Utilities is expected to under-perform the Clearway Energy. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.92 times less risky than Clearway Energy. The stock trades about -0.09 of its potential returns per unit of risk. The Clearway Energy Class is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,617  in Clearway Energy Class on August 28, 2024 and sell it today you would earn a total of  253.00  from holding Clearway Energy Class or generate 9.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Algonquin Power Utilities  vs.  Clearway Energy Class

 Performance 
       Timeline  
Algonquin Power Utilities 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Clearway Energy Class 

Risk-Adjusted Performance

1 of 100

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

Algonquin Power and Clearway Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Algonquin Power and Clearway Energy

The main advantage of trading using opposite Algonquin Power and Clearway Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power position performs unexpectedly, Clearway 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 Clearway Energy will offset losses from the drop in Clearway Energy's long position.
The idea behind Algonquin Power Utilities and Clearway Energy Class 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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