Correlation Between Energy and American Pwr

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

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

Diversification Opportunities for Energy and American Pwr

0.28

Correlation Coefficient

Energy  American Pwr

Modest diversification

The 3 months correlation between Energy and American is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and American Pwr Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Pwr Group and Energy 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 Energy and Water are associated (or correlated) with American Pwr. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Pwr Group has no effect on the direction of Energy i.e., Energy and American Pwr go up and down completely randomly.

Pair Corralation between Energy and American Pwr

Given the investment horizon of 90 days Energy and Water is expected to under-perform the American Pwr. In addition to that, Energy is 1.5 times more volatile than American Pwr Group. It trades about -0.26 of its total potential returns per unit of risk. American Pwr Group is currently generating about 0.04 per unit of volatility. If you would invest  1.50  in American Pwr Group on September 2, 2024 and sell it today you would earn a total of  0.00  from holding American Pwr Group or generate 0.0% return on investment over 90 days.

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

Energy and Water  vs.  American Pwr Group

Energy and Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy and Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

American Pwr Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Pwr Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical and fundamental indicators, American Pwr demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy and American Pwr

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

The idea behind Energy and Water and American Pwr Group 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 CEOs Directory module to screen CEOs from public companies around the world.