Correlation Between Ameren Illinois and Southern

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

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

Diversification Opportunities for Ameren Illinois and Southern

0.18

Correlation Coefficient

Ameren Illinois  Southern

Average diversification

The 3 months correlation between Ameren and Southern is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ameren Illinois and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern 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 Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern has no effect on the direction of Ameren Illinois i.e., Ameren Illinois and Southern go up and down completely randomly.

Pair Corralation between Ameren Illinois and Southern

Assuming the 90 days horizon Ameren Illinois is expected to generate 1.24 times more return on investment than Southern. However, Ameren Illinois is 1.24 times more volatile than Southern Company. It trades about 0.02 of its potential returns per unit of risk. Southern Company is currently generating about -0.06 per unit of risk. If you would invest  8,079  in Ameren Illinois on September 12, 2024 and sell it today you would earn a total of  116.00  from holding Ameren Illinois or generate 1.44% return on investment over 90 days.

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

Ameren Illinois  vs.  Southern Company

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.

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ameren Illinois and Southern

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

The idea behind Ameren Illinois and Southern Company 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.