Correlation Between Consumers Energy and TransAlta Corp
Can any of the company-specific risk be diversified away by investing in both Consumers Energy and TransAlta Corp 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 Consumers Energy and TransAlta Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumers Energy and TransAlta Corp, you can compare the effects of market volatilities on Consumers Energy and TransAlta Corp 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 Consumers Energy with a short position of TransAlta Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumers Energy and TransAlta Corp.
Diversification Opportunities for Consumers Energy and TransAlta Corp
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Consumers and TransAlta is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and TransAlta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Corp and Consumers Energy 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 Consumers Energy are associated (or correlated) with TransAlta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Corp has no effect on the direction of Consumers Energy i.e., Consumers Energy and TransAlta Corp go up and down completely randomly.
Pair Corralation between Consumers Energy and TransAlta Corp
Assuming the 90 days trading horizon Consumers Energy is expected to under-perform the TransAlta Corp. But the preferred stock apears to be less risky and, when comparing its historical volatility, Consumers Energy is 2.16 times less risky than TransAlta Corp. The preferred stock trades about -0.16 of its potential returns per unit of risk. The TransAlta Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,014 in TransAlta Corp on August 24, 2024 and sell it today you would earn a total of 78.00 from holding TransAlta Corp or generate 7.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumers Energy vs. TransAlta Corp
Performance |
| Timeline |
| Consumers Energy |
| TransAlta Corp |
Consumers Energy and TransAlta Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumers Energy and TransAlta Corp
The main advantage of trading using opposite Consumers Energy and TransAlta Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumers Energy position performs unexpectedly, TransAlta Corp 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 TransAlta Corp will offset losses from the drop in TransAlta Corp's long position.| Consumers Energy vs. Nextera Energy | Consumers Energy vs. Duke Energy | Consumers Energy vs. PGE Corp | Consumers Energy vs. Southern Company |
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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