Correlation Between Algonquin Power and Xtract One

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

Diversification Opportunities for Algonquin Power and Xtract One

-0.32

Correlation Coefficient

Algonquin Power  Xtract One

Very good diversification

The 3 months correlation between Algonquin and Xtract is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Xtract One Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtract One Technologies 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 Xtract One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtract One Technologies has no effect on the direction of Algonquin Power i.e., Algonquin Power and Xtract One go up and down completely randomly.

Pair Corralation between Algonquin Power and Xtract One

Assuming the 90 days trading horizon Algonquin Power is expected to generate 8.47 times less return on investment than Xtract One. But when comparing it to its historical volatility, Algonquin Power Utilities is 4.13 times less risky than Xtract One. It trades about 0.03 of its potential returns per unit of risk. Xtract One Technologies is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  61.00  in Xtract One Technologies on September 3, 2024 and sell it today you would earn a total of  5.00  from holding Xtract One Technologies or generate 8.2% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Xtract One Technologies

Algonquin Power Utilities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Algonquin Power is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Xtract One Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xtract One Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Xtract One may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Algonquin Power and Xtract One

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

The idea behind Algonquin Power Utilities and Xtract One Technologies 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 Transaction History module to view history of all your transactions and understand their impact on performance.