Correlation Between Canadian Utilities and Diversified Royalty

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

By analyzing existing cross correlation between Canadian Utilities Limited and Diversified Royalty Corp, you can compare the effects of market volatilities on Canadian Utilities and Diversified Royalty 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 Canadian Utilities with a short position of Diversified Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Utilities and Diversified Royalty.

Diversification Opportunities for Canadian Utilities and Diversified Royalty

0.35

Correlation Coefficient

Canadian Utilities  Diversified Royalty

Weak diversification

The 3 months correlation between Canadian and Diversified is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Diversified Royalty Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Royalty Corp and Canadian Utilities 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 Canadian Utilities Limited are associated (or correlated) with Diversified Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Royalty Corp has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Diversified Royalty go up and down completely randomly.

Pair Corralation between Canadian Utilities and Diversified Royalty

Assuming the 90 days horizon Canadian Utilities is expected to generate 7.2 times less return on investment than Diversified Royalty. But when comparing it to its historical volatility, Canadian Utilities Limited is 2.04 times less risky than Diversified Royalty. It trades about 0.06 of its potential returns per unit of risk. Diversified Royalty Corp is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  277.00  in Diversified Royalty Corp on April 22, 2025 and sell it today you would earn a total of  51.00  from holding Diversified Royalty Corp or generate 18.41% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Diversified Royalty Corp

Canadian Utilities

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Canadian Utilities is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Diversified Royalty Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Royalty Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Diversified Royalty displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Utilities and Diversified Royalty

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

The idea behind Canadian Utilities Limited and Diversified Royalty 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.