Correlation Between American Electric and CLP Holdings
Can any of the company-specific risk be diversified away by investing in both American Electric and CLP Holdings 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 CLP Holdings 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 CLP Holdings, you can compare the effects of market volatilities on American Electric and CLP Holdings 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 CLP Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and CLP Holdings.
Diversification Opportunities for American Electric and CLP Holdings
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and CLP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and CLP Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLP Holdings 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 CLP Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLP Holdings has no effect on the direction of American Electric i.e., American Electric and CLP Holdings go up and down completely randomly.
Pair Corralation between American Electric and CLP Holdings
Considering the 90-day investment horizon American Electric Power is expected to generate 2.11 times more return on investment than CLP Holdings. However, American Electric is 2.11 times more volatile than CLP Holdings. It trades about 0.07 of its potential returns per unit of risk. CLP Holdings is currently generating about 0.0 per unit of risk. If you would invest 9,780 in American Electric Power on September 1, 2024 and sell it today you would earn a total of 206.00 from holding American Electric Power or generate 2.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. CLP Holdings
Performance |
| Timeline |
| American Electric Power |
| CLP Holdings |
American Electric and CLP Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and CLP Holdings
The main advantage of trading using opposite American Electric and CLP Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, CLP Holdings 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 CLP Holdings will offset losses from the drop in CLP Holdings' long position.| American Electric vs. MGE Energy | American Electric vs. CMS Energy | American Electric vs. OGE Energy | American Electric vs. DTE Energy |
| CLP Holdings vs. Southern Company | CLP Holdings vs. Duke Energy | CLP Holdings vs. Duke Energy | CLP Holdings vs. National Grid PLC |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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