Correlation Between Fortis and Topaz Energy

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

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

Diversification Opportunities for Fortis and Topaz Energy

0.46

Correlation Coefficient

Fortis  Topaz Energy

Very weak diversification

The 3 months correlation between Fortis and Topaz is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Fortis Inc and Topaz Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topaz Energy Corp 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 Topaz Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topaz Energy Corp has no effect on the direction of Fortis i.e., Fortis and Topaz Energy go up and down completely randomly.

Pair Corralation between Fortis and Topaz Energy

Assuming the 90 days trading horizon Fortis is expected to generate 1.88 times less return on investment than Topaz Energy. But when comparing it to its historical volatility, Fortis Inc is 1.34 times less risky than Topaz Energy. It trades about 0.05 of its potential returns per unit of risk. Topaz Energy Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,909  in Topaz Energy Corp on September 4, 2024 and sell it today you would earn a total of  838.00  from holding Topaz Energy Corp or generate 43.9% return on investment over 90 days.

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

Fortis Inc  vs.  Topaz Energy Corp

Fortis Inc

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 6 (%) 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.

Topaz Energy Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Topaz Energy Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Topaz Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fortis and Topaz Energy

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

The idea behind Fortis Inc and Topaz Energy 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.