Correlation Between American Electric and Artesian Resources
Can any of the company-specific risk be diversified away by investing in both American Electric and Artesian Resources 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 Artesian Resources 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 Artesian Resources, you can compare the effects of market volatilities on American Electric and Artesian Resources 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 Artesian Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Artesian Resources.
Diversification Opportunities for American Electric and Artesian Resources
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between American and Artesian is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Artesian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Artesian Resources 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 Artesian Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Artesian Resources has no effect on the direction of American Electric i.e., American Electric and Artesian Resources go up and down completely randomly.
Pair Corralation between American Electric and Artesian Resources
Considering the 90-day investment horizon American Electric Power is expected to generate 0.88 times more return on investment than Artesian Resources. However, American Electric Power is 1.14 times less risky than Artesian Resources. It trades about 0.22 of its potential returns per unit of risk. Artesian Resources is currently generating about -0.02 per unit of risk. If you would invest 9,194 in American Electric Power on November 3, 2024 and sell it today you would earn a total of 642.00 from holding American Electric Power or generate 6.98% 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. Artesian Resources
Performance |
| Timeline |
| American Electric Power |
| Artesian Resources |
American Electric and Artesian Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Artesian Resources
The main advantage of trading using opposite American Electric and Artesian Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Artesian Resources 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 Artesian Resources will offset losses from the drop in Artesian Resources' long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
| Artesian Resources vs. California Water Service | Artesian Resources vs. SJW Group Common | Artesian Resources vs. The York Water | Artesian Resources vs. American States Water |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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