Correlation Between Capital Power and Air Canada

Can any of the company-specific risk be diversified away by investing in both Capital Power and Air Canada 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 Capital Power and Air Canada into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Power and Air Canada, you can compare the effects of market volatilities on Capital Power and Air Canada 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 Capital Power with a short position of Air Canada. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Power and Air Canada.

Diversification Opportunities for Capital Power and Air Canada

0.92

Correlation Coefficient

Capital Power  Air Canada

Almost no diversification

The 3 months correlation between Capital and Air is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Capital Power and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada and Capital 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 Capital Power are associated (or correlated) with Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of Capital Power i.e., Capital Power and Air Canada go up and down completely randomly.

Pair Corralation between Capital Power and Air Canada

Assuming the 90 days trading horizon Capital Power is expected to generate 0.72 times more return on investment than Air Canada. However, Capital Power is 1.39 times less risky than Air Canada. It trades about 0.07 of its potential returns per unit of risk. Air Canada is currently generating about 0.02 per unit of risk. If you would invest  4,179  in Capital Power on September 24, 2024 and sell it today you would earn a total of  2,136  from holding Capital Power or generate 51.11% return on investment over 90 days.

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

Capital Power  vs.  Air Canada

Capital Power

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Power are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Capital Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Air Canada

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Air Canada displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Power and Air Canada

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

The idea behind Capital Power and Air Canada 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .