Correlation Between Postmedia Network and TransAlta Corp

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

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

Diversification Opportunities for Postmedia Network and TransAlta Corp

-0.76

Correlation Coefficient

Postmedia Network  TransAlta Corp

Pay attention - limited upside

The 3 months correlation between Postmedia and TransAlta is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Postmedia Network Canada and TransAlta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Corp and Postmedia Network 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 Postmedia Network Canada are associated (or correlated) with TransAlta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Corp has no effect on the direction of Postmedia Network i.e., Postmedia Network and TransAlta Corp go up and down completely randomly.

Pair Corralation between Postmedia Network and TransAlta Corp

Assuming the 90 days trading horizon Postmedia Network Canada is expected to under-perform the TransAlta Corp. But the stock apears to be less risky and, when comparing its historical volatility, Postmedia Network Canada is 1.61 times less risky than TransAlta Corp. The stock trades about -0.13 of its potential returns per unit of risk. The TransAlta Corp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,236  in TransAlta Corp on September 13, 2024 and sell it today you would earn a total of  634.00  from holding TransAlta Corp or generate 51.29% return on investment over 90 days.

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

Postmedia Network Canada  vs.  TransAlta Corp

Postmedia Network Canada

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Postmedia Network Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

TransAlta Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TransAlta Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Postmedia Network and TransAlta Corp

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

The idea behind Postmedia Network Canada and TransAlta 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.