Correlation Between American Electric and Xcel Energy
Can any of the company-specific risk be diversified away by investing in both American Electric and Xcel Energy 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 Xcel Energy 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 Xcel Energy, you can compare the effects of market volatilities on American Electric and Xcel Energy 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 Xcel Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Xcel Energy.
Diversification Opportunities for American Electric and Xcel Energy
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between American and Xcel is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy 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 Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of American Electric i.e., American Electric and Xcel Energy go up and down completely randomly.
Pair Corralation between American Electric and Xcel Energy
Assuming the 90 days horizon American Electric Power is expected to generate 0.93 times more return on investment than Xcel Energy. However, American Electric Power is 1.07 times less risky than Xcel Energy. It trades about 0.03 of its potential returns per unit of risk. Xcel Energy is currently generating about 0.02 per unit of risk. If you would invest 8,256 in American Electric Power on August 27, 2024 and sell it today you would earn a total of 1,194 from holding American Electric Power or generate 14.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. Xcel Energy
Performance |
| Timeline |
| American Electric Power |
| Xcel Energy |
American Electric and Xcel Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Xcel Energy
The main advantage of trading using opposite American Electric and Xcel Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Xcel Energy 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 Xcel Energy will offset losses from the drop in Xcel Energy's long position.| American Electric vs. Penta Ocean Construction Co | American Electric vs. Granite Construction | American Electric vs. Hanison Construction Holdings | American Electric vs. United Airlines Holdings |
| Xcel Energy vs. NextEra Energy | Xcel Energy vs. The Southern | Xcel Energy vs. VERBUND AG | Xcel Energy vs. American Electric Power |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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