Correlation Between American Electric and Enel Chile

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

Diversification Opportunities for American Electric and Enel Chile

-0.4

Correlation Coefficient

American Electric  Enel Chile

Very good diversification

The 3 months correlation between American and Enel is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Enel Chile SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel Chile SA 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 Enel Chile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel Chile SA has no effect on the direction of American Electric i.e., American Electric and Enel Chile go up and down completely randomly.

Pair Corralation between American Electric and Enel Chile

Considering the 90-day investment horizon American Electric Power is expected to generate 0.63 times more return on investment than Enel Chile. However, American Electric Power is 1.59 times less risky than Enel Chile. It trades about 0.01 of its potential returns per unit of risk. Enel Chile SA is currently generating about -0.01 per unit of risk. If you would invest  9,931  in American Electric Power on August 30, 2024 and sell it today you would earn a total of  58.00  from holding American Electric Power or generate 0.58% return on investment over 90 days.

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

American Electric Power  vs.  Enel Chile SA

American Electric Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, American Electric is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Enel Chile SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with American Electric and Enel Chile

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

The idea behind American Electric Power and Enel Chile SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.