Correlation Between American Electric and Ameren Corp
Can any of the company-specific risk be diversified away by investing in both American Electric and Ameren Corp 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 Ameren Corp 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 Ameren Corp, you can compare the effects of market volatilities on American Electric and Ameren Corp 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 Ameren Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Ameren Corp.
Diversification Opportunities for American Electric and Ameren Corp
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Ameren is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Ameren Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameren Corp 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 Ameren Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameren Corp has no effect on the direction of American Electric i.e., American Electric and Ameren Corp go up and down completely randomly.
Pair Corralation between American Electric and Ameren Corp
Considering the 90-day investment horizon American Electric is expected to generate 1.13 times less return on investment than Ameren Corp. In addition to that, American Electric is 1.0 times more volatile than Ameren Corp. It trades about 0.02 of its total potential returns per unit of risk. Ameren Corp is currently generating about 0.03 per unit of volatility. If you would invest 8,254 in Ameren Corp on August 23, 2024 and sell it today you would earn a total of 1,143 from holding Ameren Corp or generate 13.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. Ameren Corp
Performance |
| Timeline |
| American Electric Power |
| Ameren Corp |
American Electric and Ameren Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Ameren Corp
The main advantage of trading using opposite American Electric and Ameren Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Ameren Corp 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 Ameren Corp will offset losses from the drop in Ameren Corp's long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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