Correlation Between Algonquin Power and Nextera Energy

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

Diversification Opportunities for Algonquin Power and Nextera Energy

0.12

Correlation Coefficient

Algonquin Power  Nextera Energy

Average diversification

The 3 months correlation between Algonquin and Nextera is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Nextera Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy Partners 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy Partners has no effect on the direction of Algonquin Power i.e., Algonquin Power and Nextera Energy go up and down completely randomly.

Pair Corralation between Algonquin Power and Nextera Energy

Considering the 90-day investment horizon Algonquin Power Utilities is expected to under-perform the Nextera Energy. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.33 times less risky than Nextera Energy. The stock trades about -0.03 of its potential returns per unit of risk. The Nextera Energy Partners is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,612  in Nextera Energy Partners on July 19, 2024 and sell it today you would earn a total of  31.00  from holding Nextera Energy Partners or generate 1.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Algonquin Power Utilities  vs.  Nextera Energy Partners

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

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.

Nextera Energy Partners

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nextera Energy Partners are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Algonquin Power and Nextera Energy

The main advantage of trading using opposite Algonquin Power and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power position performs unexpectedly, Nextera 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 Nextera Energy will offset losses from the drop in Nextera Energy's long position.

The idea behind Algonquin Power Utilities and Nextera Energy Partners 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.