Correlation Between Algonquin Power and Alternus Energy

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

Diversification Opportunities for Algonquin Power and Alternus Energy

0.83

Correlation Coefficient

Algonquin Power  Alternus Energy

Very poor diversification

The 3 months correlation between Algonquin and Alternus is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Alternus Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alternus Energy Group 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 Alternus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alternus Energy Group has no effect on the direction of Algonquin Power i.e., Algonquin Power and Alternus Energy go up and down completely randomly.

Pair Corralation between Algonquin Power and Alternus Energy

Considering the 90-day investment horizon Algonquin Power Utilities is expected to generate 0.36 times more return on investment than Alternus Energy. However, Algonquin Power Utilities is 2.76 times less risky than Alternus Energy. It trades about 0.14 of its potential returns per unit of risk. Alternus Energy Group is currently generating about -0.75 per unit of risk. If you would invest  476.00  in Algonquin Power Utilities on September 2, 2024 and sell it today you would earn a total of  19.00  from holding Algonquin Power Utilities or generate 3.99% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  Alternus Energy Group

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 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.

Alternus Energy Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alternus Energy Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Algonquin Power and Alternus Energy

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

The idea behind Algonquin Power Utilities and Alternus Energy Group 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.