Correlation Between American Electric and PPL
Can any of the company-specific risk be diversified away by investing in both American Electric and PPL 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 PPL 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 PPL Corporation, you can compare the effects of market volatilities on American Electric and PPL 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 PPL. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and PPL.
Diversification Opportunities for American Electric and PPL
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between American and PPL is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and PPL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPL Corporation 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 PPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPL Corporation has no effect on the direction of American Electric i.e., American Electric and PPL go up and down completely randomly.
Pair Corralation between American Electric and PPL
Considering the 90-day investment horizon American Electric is expected to generate 1.24 times less return on investment than PPL. In addition to that, American Electric is 1.16 times more volatile than PPL Corporation. It trades about 0.09 of its total potential returns per unit of risk. PPL Corporation is currently generating about 0.13 per unit of volatility. If you would invest 2,520 in PPL Corporation on August 26, 2024 and sell it today you would earn a total of 925.00 from holding PPL Corporation or generate 36.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. PPL Corp.
Performance |
| Timeline |
| American Electric Power |
| PPL Corporation |
American Electric and PPL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and PPL
The main advantage of trading using opposite American Electric and PPL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, PPL 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 PPL will offset losses from the drop in PPL's long position.| American Electric vs. Dominion Energy | American Electric vs. Consolidated Edison | American Electric vs. Eversource Energy | American Electric 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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