Correlation Between American Electric and Public Service
Can any of the company-specific risk be diversified away by investing in both American Electric and Public Service 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 Public Service 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 Public Service Enterprise, you can compare the effects of market volatilities on American Electric and Public Service 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 Public Service. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Public Service.
Diversification Opportunities for American Electric and Public Service
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Public is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Public Service Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Service Enterprise 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 Public Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Service Enterprise has no effect on the direction of American Electric i.e., American Electric and Public Service go up and down completely randomly.
Pair Corralation between American Electric and Public Service
Considering the 90-day investment horizon American Electric Power is expected to generate 0.94 times more return on investment than Public Service. However, American Electric Power is 1.06 times less risky than Public Service. It trades about 0.36 of its potential returns per unit of risk. Public Service Enterprise is currently generating about 0.29 per unit of risk. If you would invest 9,124 in American Electric Power on October 20, 2024 and sell it today you would earn a total of 601.00 from holding American Electric Power or generate 6.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
American Electric Power vs. Public Service Enterprise
Performance |
| Timeline |
| American Electric Power |
| Public Service Enterprise |
American Electric and Public Service Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Public Service
The main advantage of trading using opposite American Electric and Public Service positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Public Service 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 Public Service will offset losses from the drop in Public Service's long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
| Public Service vs. CenterPoint Energy | Public Service vs. FirstEnergy | Public Service vs. Pinnacle West Capital | Public Service vs. Edison International |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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