Correlation Between American Electric and Dow Jones
Can any of the company-specific risk be diversified away by investing in both American Electric and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on American Electric and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Dow Jones.
Diversification Opportunities for American Electric and Dow Jones
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between American and Dow is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of American Electric i.e., American Electric and Dow Jones go up and down completely randomly.
Pair Corralation between American Electric and Dow Jones
Assuming the 90 days trading horizon American Electric Power is expected to generate 1.24 times more return on investment than Dow Jones. However, American Electric is 1.24 times more volatile than Dow Jones Industrial. It trades about 0.26 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.29 per unit of risk. If you would invest 8,856 in American Electric Power on August 31, 2024 and sell it today you would earn a total of 644.00 from holding American Electric Power or generate 7.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
American Electric Power vs. Dow Jones Industrial
Performance |
| Timeline |
American Electric and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
American Electric Power
Pair trading matchups for American Electric
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with American Electric and Dow Jones
The main advantage of trading using opposite American Electric and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| American Electric vs. Singapore Reinsurance | American Electric vs. LIFENET INSURANCE CO | American Electric vs. HANOVER INSURANCE | American Electric vs. Infrastrutture Wireless Italiane |
| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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