Correlation Between American Electric and OGE Energy
Can any of the company-specific risk be diversified away by investing in both American Electric and OGE 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 OGE 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 OGE Energy, you can compare the effects of market volatilities on American Electric and OGE 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 OGE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and OGE Energy.
Diversification Opportunities for American Electric and OGE Energy
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and OGE is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and OGE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OGE 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 OGE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OGE Energy has no effect on the direction of American Electric i.e., American Electric and OGE Energy go up and down completely randomly.
Pair Corralation between American Electric and OGE Energy
Considering the 90-day investment horizon American Electric Power is expected to generate 1.49 times more return on investment than OGE Energy. However, American Electric is 1.49 times more volatile than OGE Energy. It trades about 0.19 of its potential returns per unit of risk. OGE Energy is currently generating about 0.11 per unit of risk. If you would invest 9,635 in American Electric Power on November 18, 2024 and sell it today you would earn a total of 548.00 from holding American Electric Power or generate 5.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. OGE Energy
Performance |
| Timeline |
| American Electric Power |
| OGE Energy |
American Electric and OGE Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and OGE Energy
The main advantage of trading using opposite American Electric and OGE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, OGE 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 OGE Energy will offset losses from the drop in OGE Energy's long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
| OGE Energy vs. Alliant Energy Corp | OGE Energy vs. CMS Energy | OGE Energy vs. CenterPoint Energy | OGE Energy vs. Pinnacle West Capital |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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