Correlation Between Algonquin Power and PPL

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

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

Diversification Opportunities for Algonquin Power and PPL

0.78

Correlation Coefficient

Algonquin Power  PPL

Poor diversification

The 3 months correlation between Algonquin and PPL is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and PPL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPL Corporation and Algonquin 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 Algonquin Power Utilities are associated (or correlated) with PPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPL Corporation has no effect on the direction of Algonquin Power i.e., Algonquin Power and PPL go up and down completely randomly.

Pair Corralation between Algonquin Power and PPL

Considering the 90-day investment horizon Algonquin Power Utilities is expected to under-perform the PPL. In addition to that, Algonquin Power is 1.72 times more volatile than PPL Corporation. It trades about -0.05 of its total potential returns per unit of risk. PPL Corporation is currently generating about 0.01 per unit of volatility. If you would invest  2,723  in PPL Corporation on January 26, 2024 and sell it today you would earn a total of  14.00  from holding PPL Corporation or generate 0.51% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  PPL Corp.

Algonquin Power Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Algonquin Power is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

PPL Corporation

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PPL Corporation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, PPL may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Algonquin Power and PPL

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

The idea behind Algonquin Power Utilities and PPL Corporation 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.