Correlation Between American Electric and Ameren Illinois
Can any of the company-specific risk be diversified away by investing in both American Electric and Ameren Illinois 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 Illinois 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 Illinois, you can compare the effects of market volatilities on American Electric and Ameren Illinois 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 Illinois. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Ameren Illinois.
Diversification Opportunities for American Electric and Ameren Illinois
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between American and Ameren is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Ameren Illinois in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameren Illinois 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 Illinois. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameren Illinois has no effect on the direction of American Electric i.e., American Electric and Ameren Illinois go up and down completely randomly.
Pair Corralation between American Electric and Ameren Illinois
Considering the 90-day investment horizon American Electric Power is expected to under-perform the Ameren Illinois. In addition to that, American Electric is 4.21 times more volatile than Ameren Illinois. It trades about -0.03 of its total potential returns per unit of risk. Ameren Illinois is currently generating about -0.01 per unit of volatility. If you would invest 8,200 in Ameren Illinois on September 12, 2024 and sell it today you would lose (5.00) from holding Ameren Illinois or give up 0.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. Ameren Illinois
Performance |
| Timeline |
| American Electric Power |
| Ameren Illinois |
American Electric and Ameren Illinois Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Ameren Illinois
The main advantage of trading using opposite American Electric and Ameren Illinois positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Ameren Illinois 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 Illinois will offset losses from the drop in Ameren Illinois' long position.The idea behind American Electric Power and Ameren Illinois pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Ameren Illinois vs. Duke Energy | Ameren Illinois vs. Consolidated Edison | Ameren Illinois vs. Dominion Energy | Ameren Illinois 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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