Correlation Between Canadian Utilities and Next PLC

Can any of the company-specific risk be diversified away by investing in both Canadian Utilities and Next PLC 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 Next PLC 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 Next PLC, you can compare the effects of market volatilities on Canadian Utilities and Next PLC 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 Next PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Utilities and Next PLC.

Diversification Opportunities for Canadian Utilities and Next PLC

0.73

Correlation Coefficient

Canadian Utilities  Next PLC

Poor diversification

The 3 months correlation between Canadian and Next is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Next PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next PLC 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 Next PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next PLC has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Next PLC go up and down completely randomly.

Pair Corralation between Canadian Utilities and Next PLC

Assuming the 90 days horizon Canadian Utilities Limited is expected to generate 0.4 times more return on investment than Next PLC. However, Canadian Utilities Limited is 2.5 times less risky than Next PLC. It trades about 0.01 of its potential returns per unit of risk. Next PLC is currently generating about 0.0 per unit of risk. If you would invest  2,382  in Canadian Utilities Limited on April 23, 2025 and sell it today you would earn a total of  5.00  from holding Canadian Utilities Limited or generate 0.21% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Next PLC

Canadian Utilities

Risk-Adjusted Performance

Insignificant

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Next PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Next PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Next PLC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Canadian Utilities and Next PLC

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

The idea behind Canadian Utilities Limited and Next PLC 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.