Correlation Between American Electric and China Power
Can any of the company-specific risk be diversified away by investing in both American Electric and China Power 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 China Power 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 China Power International, you can compare the effects of market volatilities on American Electric and China Power 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 China Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and China Power.
Diversification Opportunities for American Electric and China Power
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and China Power International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Power International 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 China Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Power International has no effect on the direction of American Electric i.e., American Electric and China Power go up and down completely randomly.
Pair Corralation between American Electric and China Power
If you would invest 8,280 in American Electric Power on August 27, 2024 and sell it today you would earn a total of 1,479 from holding American Electric Power or generate 17.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 0.53% |
| Values | Daily Returns |
American Electric Power vs. China Power International
Performance |
| Timeline |
| American Electric Power |
| China Power International |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
American Electric and China Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and China Power
The main advantage of trading using opposite American Electric and China Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, China Power 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 China Power will offset losses from the drop in China Power's long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
| China Power vs. Southern Company | China Power vs. Edison International | China Power vs. American Electric Power | China Power vs. Duke Energy |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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