Correlation Between Capital Power and Canadian Utilities
Can any of the company-specific risk be diversified away by investing in both Capital Power and Canadian Utilities 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 Capital Power and Canadian Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Power and Canadian Utilities Limited, you can compare the effects of market volatilities on Capital Power and Canadian Utilities 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 Capital Power with a short position of Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Power and Canadian Utilities.
Diversification Opportunities for Capital Power and Canadian Utilities
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Capital and Canadian is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Capital Power and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and Capital 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 Capital Power are associated (or correlated) with Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Capital Power i.e., Capital Power and Canadian Utilities go up and down completely randomly.
Pair Corralation between Capital Power and Canadian Utilities
Assuming the 90 days trading horizon Capital Power is expected to generate 2.2 times more return on investment than Canadian Utilities. However, Capital Power is 2.2 times more volatile than Canadian Utilities Limited. It trades about 0.21 of its potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.12 per unit of risk. If you would invest 4,027 in Capital Power on October 22, 2024 and sell it today you would earn a total of 2,186 from holding Capital Power or generate 54.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Power vs. Canadian Utilities Limited
Performance |
| Timeline |
| Capital Power |
| Canadian Utilities |
Capital Power and Canadian Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Power and Canadian Utilities
The main advantage of trading using opposite Capital Power and Canadian Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Power position performs unexpectedly, Canadian Utilities 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 Canadian Utilities will offset losses from the drop in Canadian Utilities' long position.| Capital Power vs. Canadian Utilities Limited | Capital Power vs. Emera Inc | Capital Power vs. Keyera Corp | Capital Power vs. Northland Power |
| Canadian Utilities vs. Fortis Inc | Canadian Utilities vs. Emera Inc | Canadian Utilities vs. Algonquin Power Utilities | Canadian Utilities vs. ATCO |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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