Correlation Between American Electric and IDACORP

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

Diversification Opportunities for American Electric and IDACORP

-0.52

Correlation Coefficient

American Electric  IDACORP

Excellent diversification

The 3 months correlation between American and IDACORP is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and IDACORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDACORP 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 IDACORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDACORP has no effect on the direction of American Electric i.e., American Electric and IDACORP go up and down completely randomly.

Pair Corralation between American Electric and IDACORP

Considering the 90-day investment horizon American Electric Power is expected to under-perform the IDACORP. In addition to that, American Electric is 1.17 times more volatile than IDACORP. It trades about -0.11 of its total potential returns per unit of risk. IDACORP is currently generating about 0.16 per unit of volatility. If you would invest  10,217  in IDACORP on September 12, 2024 and sell it today you would earn a total of  1,080  from holding IDACORP or generate 10.57% 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.  IDACORP

American Electric Power

Risk-Adjusted Performance

0 of 100

Very 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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

IDACORP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IDACORP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, IDACORP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Electric and IDACORP

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

The idea behind American Electric Power and IDACORP 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.