Correlation Between American Electric and American States

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

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

Diversification Opportunities for American Electric and American States

-0.25

Correlation Coefficient

American Electric  American States

Very good diversification

The 3 months correlation between American and American is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water and American Electric 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 American Electric Power are associated (or correlated) with American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of American Electric i.e., American Electric and American States go up and down completely randomly.

Pair Corralation between American Electric and American States

Considering the 90-day investment horizon American Electric Power is expected to under-perform the American States. But the stock apears to be less risky and, when comparing its historical volatility, American Electric Power is 1.04 times less risky than American States. The stock trades about 0.0 of its potential returns per unit of risk. The American States Water is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,080  in American States Water on August 31, 2024 and sell it today you would earn a total of  457.00  from holding American States Water or generate 5.66% return on investment over 90 days.

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

American Electric Power  vs.  American States Water

American Electric Power

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days American Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, American Electric is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

American States Water

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, American States is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with American Electric and American States

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

The idea behind American Electric Power and American States Water 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.