Correlation Between Emera and Canadian Utilities
Can any of the company-specific risk be diversified away by investing in both Emera 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 Emera and Canadian Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emera Inc and Canadian Utilities Limited, you can compare the effects of market volatilities on Emera 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 Emera with a short position of Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emera and Canadian Utilities.
Diversification Opportunities for Emera and Canadian Utilities
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emera and Canadian is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Emera Inc and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and Emera 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 Emera Inc 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 Emera i.e., Emera and Canadian Utilities go up and down completely randomly.
Pair Corralation between Emera and Canadian Utilities
Assuming the 90 days trading horizon Emera Inc is expected to generate 1.12 times more return on investment than Canadian Utilities. However, Emera is 1.12 times more volatile than Canadian Utilities Limited. It trades about 0.04 of its potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.02 per unit of risk. If you would invest 5,248 in Emera Inc on August 29, 2024 and sell it today you would earn a total of 40.00 from holding Emera Inc or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emera Inc vs. Canadian Utilities Limited
Performance |
| Timeline |
| Emera Inc |
| Canadian Utilities |
Emera and Canadian Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emera and Canadian Utilities
The main advantage of trading using opposite Emera and Canadian Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emera 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.The idea behind Emera Inc and Canadian Utilities Limited 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.| 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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