Correlation Between Canadian Utilities and Canaf Investments

Can any of the company-specific risk be diversified away by investing in both Canadian Utilities and Canaf Investments 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 Canadian Utilities and Canaf Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Canadian Utilities Limited and Canaf Investments, you can compare the effects of market volatilities on Canadian Utilities and Canaf Investments 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 Canadian Utilities with a short position of Canaf Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Utilities and Canaf Investments.

Diversification Opportunities for Canadian Utilities and Canaf Investments

-0.44

Correlation Coefficient

Canadian Utilities  Canaf Investments

Very good diversification

The 3 months correlation between Canadian and Canaf is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Canaf Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canaf Investments and Canadian Utilities 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 Canadian Utilities Limited are associated (or correlated) with Canaf Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canaf Investments has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Canaf Investments go up and down completely randomly.

Pair Corralation between Canadian Utilities and Canaf Investments

Assuming the 90 days horizon Canadian Utilities Limited is expected to under-perform the Canaf Investments. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Utilities Limited is 4.43 times less risky than Canaf Investments. The stock trades about -0.04 of its potential returns per unit of risk. The Canaf Investments is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  27.00  in Canaf Investments on September 27, 2024 and sell it today you would earn a total of  2.00  from holding Canaf Investments or generate 7.41% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Canaf Investments

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Utilities is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Canaf Investments

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canaf Investments are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Canaf Investments may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canadian Utilities and Canaf Investments

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

The idea behind Canadian Utilities Limited and Canaf Investments 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.