Correlation Between American Electric and NiSource Unit

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

Diversification Opportunities for American Electric and NiSource Unit

0.91

Correlation Coefficient

American Electric  NiSource Unit

Almost no diversification

The 3 months correlation between American and NiSource is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and NiSource Unit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource Unit 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 NiSource Unit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource Unit has no effect on the direction of American Electric i.e., American Electric and NiSource Unit go up and down completely randomly.

Pair Corralation between American Electric and NiSource Unit

If you would invest  10,307  in NiSource Unit on September 13, 2024 and sell it today you would earn a total of  0.00  from holding NiSource Unit or generate 0.0% return on investment over 90 days.

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

American Electric Power  vs.  NiSource Unit

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. In spite of fairly strong basic indicators, American Electric is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NiSource Unit

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with American Electric and NiSource Unit

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

The idea behind American Electric Power and NiSource Unit 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.