Correlation Between Fortis and Northland Power

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

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

Diversification Opportunities for Fortis and Northland Power

-0.2

Correlation Coefficient

Fortis  Northland Power

Good diversification

The 3 months correlation between Fortis and Northland is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Fortis Inc and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Fortis 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 Fortis Inc are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Fortis i.e., Fortis and Northland Power go up and down completely randomly.

Pair Corralation between Fortis and Northland Power

Assuming the 90 days trading horizon Fortis Inc is expected to generate 0.45 times more return on investment than Northland Power. However, Fortis Inc is 2.2 times less risky than Northland Power. It trades about 0.1 of its potential returns per unit of risk. Northland Power is currently generating about 0.02 per unit of risk. If you would invest  5,979  in Fortis Inc on August 31, 2024 and sell it today you would earn a total of  289.00  from holding Fortis Inc or generate 4.83% return on investment over 90 days.

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

Fortis Inc  vs.  Northland Power

Fortis Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Fortis is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Northland Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Northland Power is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fortis and Northland Power

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

The idea behind Fortis Inc and Northland Power 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.