Correlation Between Dominion Energy and Algonquin Power

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Can any of the company-specific risk be diversified away by investing in both Dominion Energy and Algonquin 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 Dominion Energy and Algonquin Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dominion Energy and Algonquin Power Utilities, you can compare the effects of market volatilities on Dominion Energy and Algonquin 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 Dominion Energy with a short position of Algonquin Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dominion Energy and Algonquin Power.

Diversification Opportunities for Dominion Energy and Algonquin Power

DominionAlgonquinDiversified AwayDominionAlgonquinDiversified Away100%
0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Dominion and Algonquin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Energy and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities and Dominion 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 Dominion Energy are associated (or correlated) with Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Dominion Energy i.e., Dominion Energy and Algonquin Power go up and down completely randomly.

Pair Corralation between Dominion Energy and Algonquin Power

Taking into account the 90-day investment horizon Dominion Energy is expected to generate 1.63 times less return on investment than Algonquin Power. But when comparing it to its historical volatility, Dominion Energy is 1.08 times less risky than Algonquin Power. It trades about 0.22 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  441.00  in Algonquin Power Utilities on November 25, 2024 and sell it today you would earn a total of  55.00  from holding Algonquin Power Utilities or generate 12.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Dominion Energy  vs.  Algonquin Power Utilities

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-505
JavaScript chart by amCharts 3.21.15D AQN
       Timeline  
Dominion Energy 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Dominion Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Dominion Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb53545556575859
Algonquin Power Utilities 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Algonquin Power is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb4.24.34.44.54.64.74.84.95

Dominion Energy and Algonquin Power Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.53-3.4-2.26-1.120.01941.142.313.474.63 0.050.100.15
JavaScript chart by amCharts 3.21.15D AQN
       Returns  

Pair Trading with Dominion Energy and Algonquin Power

The main advantage of trading using opposite Dominion Energy and Algonquin Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominion Energy position performs unexpectedly, Algonquin 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 Algonquin Power will offset losses from the drop in Algonquin Power's long position.
The idea behind Dominion Energy and Algonquin Power Utilities 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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