Correlation Between American Electric and Entergy
Can any of the company-specific risk be diversified away by investing in both American Electric and Entergy 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 Entergy 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 Entergy, you can compare the effects of market volatilities on American Electric and Entergy 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 Entergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Entergy.
Diversification Opportunities for American Electric and Entergy
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between American and Entergy is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy 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 Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of American Electric i.e., American Electric and Entergy go up and down completely randomly.
Pair Corralation between American Electric and Entergy
Considering the 90-day investment horizon American Electric is expected to generate 21.94 times less return on investment than Entergy. But when comparing it to its historical volatility, American Electric Power is 1.94 times less risky than Entergy. It trades about 0.02 of its potential returns per unit of risk. Entergy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 11,784 in Entergy on August 23, 2024 and sell it today you would earn a total of 3,371 from holding Entergy or generate 28.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. Entergy
Performance |
| Timeline |
| American Electric Power |
| Entergy |
American Electric and Entergy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Entergy
The main advantage of trading using opposite American Electric and Entergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Entergy 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 Entergy will offset losses from the drop in Entergy's long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
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 CEOs Directory module to screen CEOs from public companies around the world.
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