Correlation Between Fortis and Air Canada

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

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

Diversification Opportunities for Fortis and Air Canada

-0.41

Correlation Coefficient

Fortis  Air Canada

Very good diversification

The 3 months correlation between Fortis and Air is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Fortis Inc and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada 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 Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of Fortis i.e., Fortis and Air Canada go up and down completely randomly.

Pair Corralation between Fortis and Air Canada

Assuming the 90 days trading horizon Fortis Inc is expected to generate 0.92 times more return on investment than Air Canada. However, Fortis Inc is 1.09 times less risky than Air Canada. It trades about -0.05 of its potential returns per unit of risk. Air Canada is currently generating about -0.38 per unit of risk. If you would invest  5,520  in Fortis Inc on March 14, 2024 and sell it today you would lose (64.00) from holding Fortis Inc or give up 1.16% of portfolio value over 90 days.

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

Fortis Inc  vs.  Air Canada

Fortis Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 5 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.

Air Canada

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fortis and Air Canada

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

The idea behind Fortis Inc and Air Canada 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.