Correlation Between Algonquin Power and Brookfield Renewable

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

Diversification Opportunities for Algonquin Power and Brookfield Renewable

-0.09

Correlation Coefficient

Algonquin Power  Brookfield Renewable

Good diversification

The 3 months correlation between Algonquin and Brookfield is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Brookfield Renewable Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable Corp 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 Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable Corp has no effect on the direction of Algonquin Power i.e., Algonquin Power and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Algonquin Power and Brookfield Renewable

Considering the 90-day investment horizon Algonquin Power Utilities is expected to under-perform the Brookfield Renewable. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.85 times less risky than Brookfield Renewable. The stock trades about -0.06 of its potential returns per unit of risk. The Brookfield Renewable Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,767  in Brookfield Renewable Corp on September 1, 2024 and sell it today you would earn a total of  425.00  from holding Brookfield Renewable Corp or generate 15.36% 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.  Brookfield Renewable Corp

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.

Brookfield Renewable Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Renewable Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Brookfield Renewable exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algonquin Power and Brookfield Renewable

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

The idea behind Algonquin Power Utilities and Brookfield Renewable Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.