Correlation Between American Electric and VERBUND AG
Can any of the company-specific risk be diversified away by investing in both American Electric and VERBUND AG 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 VERBUND AG 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 VERBUND AG, you can compare the effects of market volatilities on American Electric and VERBUND AG 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 VERBUND AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and VERBUND AG.
Diversification Opportunities for American Electric and VERBUND AG
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between American and VERBUND is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and VERBUND AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VERBUND AG 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 VERBUND AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VERBUND AG has no effect on the direction of American Electric i.e., American Electric and VERBUND AG go up and down completely randomly.
Pair Corralation between American Electric and VERBUND AG
Assuming the 90 days horizon American Electric Power is expected to generate 0.82 times more return on investment than VERBUND AG. However, American Electric Power is 1.22 times less risky than VERBUND AG. It trades about 0.1 of its potential returns per unit of risk. VERBUND AG is currently generating about -0.01 per unit of risk. If you would invest 6,755 in American Electric Power on August 27, 2024 and sell it today you would earn a total of 2,695 from holding American Electric Power or generate 39.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. VERBUND AG
Performance |
| Timeline |
| American Electric Power |
| VERBUND AG |
American Electric and VERBUND AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and VERBUND AG
The main advantage of trading using opposite American Electric and VERBUND AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, VERBUND AG 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 VERBUND AG will offset losses from the drop in VERBUND AG's long position.| American Electric vs. NextEra Energy | American Electric vs. The Southern | American Electric vs. VERBUND AG | American Electric vs. Eversource Energy |
| VERBUND AG vs. NextEra Energy | VERBUND AG vs. The Southern | VERBUND AG vs. American Electric Power | VERBUND AG vs. Eversource Energy |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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