Correlation Between Ameren Illinois and PacifiCorp

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

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

Diversification Opportunities for Ameren Illinois and PacifiCorp

0.09

Correlation Coefficient

Ameren Illinois  PacifiCorp

Significant diversification

The 3 months correlation between Ameren and PacifiCorp is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ameren Illinois and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp and Ameren Illinois 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 Ameren Illinois are associated (or correlated) with PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of Ameren Illinois i.e., Ameren Illinois and PacifiCorp go up and down completely randomly.

Pair Corralation between Ameren Illinois and PacifiCorp

Assuming the 90 days horizon Ameren Illinois is expected to generate 3.87 times less return on investment than PacifiCorp. But when comparing it to its historical volatility, Ameren Illinois is 3.26 times less risky than PacifiCorp. It trades about 0.02 of its potential returns per unit of risk. PacifiCorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  12,327  in PacifiCorp on September 12, 2024 and sell it today you would earn a total of  288.00  from holding PacifiCorp or generate 2.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Ameren Illinois  vs.  PacifiCorp

Ameren Illinois

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ameren Illinois are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Ameren Illinois is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

PacifiCorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PacifiCorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, PacifiCorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ameren Illinois and PacifiCorp

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

The idea behind Ameren Illinois and PacifiCorp 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.