Correlation Between American Electric and Southern
Can any of the company-specific risk be diversified away by investing in both American Electric 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 American Electric and Southern 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 The Southern, you can compare the effects of market volatilities on American Electric 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 American Electric with a short position of Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Southern.
Diversification Opportunities for American Electric and Southern
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between American and Southern is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and The Southern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern 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 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 American Electric i.e., American Electric and Southern go up and down completely randomly.
Pair Corralation between American Electric and Southern
Assuming the 90 days horizon American Electric Power is expected to generate 1.97 times more return on investment than Southern. However, American Electric is 1.97 times more volatile than The Southern. It trades about 0.1 of its potential returns per unit of risk. The Southern is currently generating about 0.1 per unit of risk. If you would invest 9,055 in American Electric Power on August 30, 2024 and sell it today you would earn a total of 445.00 from holding American Electric Power or generate 4.91% 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. The Southern
Performance |
| Timeline |
| American Electric Power |
| Southern |
American Electric and Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Southern
The main advantage of trading using opposite American Electric and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric 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.| American Electric vs. Superior Plus Corp | American Electric vs. SIVERS SEMICONDUCTORS AB | American Electric vs. Talanx AG | American Electric vs. 2G ENERGY |
| Southern vs. Superior Plus Corp | Southern vs. SIVERS SEMICONDUCTORS AB | Southern vs. Talanx AG | Southern vs. 2G 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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