Correlation Between American Electric and Duke Energy
Can any of the company-specific risk be diversified away by investing in both American Electric and Duke Energy 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 Duke Energy 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 Duke Energy, you can compare the effects of market volatilities on American Electric and Duke Energy 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 Duke Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Duke Energy.
Diversification Opportunities for American Electric and Duke Energy
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Duke is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Duke Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Duke Energy 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 Duke Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Duke Energy has no effect on the direction of American Electric i.e., American Electric and Duke Energy go up and down completely randomly.
Pair Corralation between American Electric and Duke Energy
Considering the 90-day investment horizon American Electric is expected to generate 1.86 times less return on investment than Duke Energy. In addition to that, American Electric is 1.15 times more volatile than Duke Energy. It trades about 0.02 of its total potential returns per unit of risk. Duke Energy is currently generating about 0.05 per unit of volatility. If you would invest 9,249 in Duke Energy on August 27, 2024 and sell it today you would earn a total of 2,221 from holding Duke Energy or generate 24.01% 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. Duke Energy
Performance |
| Timeline |
| American Electric Power |
| Duke Energy |
American Electric and Duke Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Duke Energy
The main advantage of trading using opposite American Electric and Duke Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Duke Energy 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 Duke Energy will offset losses from the drop in Duke Energy's long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
| Duke Energy vs. Dominion Energy | Duke Energy vs. Consolidated Edison | Duke Energy vs. Eversource Energy | Duke Energy vs. FirstEnergy |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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