Correlation Between American Electric and Red Electrica
Can any of the company-specific risk be diversified away by investing in both American Electric and Red Electrica 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 Red Electrica 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 Red Electrica Corporacion, you can compare the effects of market volatilities on American Electric and Red Electrica 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 Red Electrica. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Red Electrica.
Diversification Opportunities for American Electric and Red Electrica
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Red is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion 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 Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of American Electric i.e., American Electric and Red Electrica go up and down completely randomly.
Pair Corralation between American Electric and Red Electrica
Considering the 90-day investment horizon American Electric Power is expected to generate 0.96 times more return on investment than Red Electrica. However, American Electric Power is 1.04 times less risky than Red Electrica. It trades about 0.01 of its potential returns per unit of risk. Red Electrica Corporacion is currently generating about -0.04 per unit of risk. If you would invest 9,815 in American Electric Power on August 28, 2024 and sell it today you would lose (5.00) from holding American Electric Power or give up 0.05% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. Red Electrica Corporacion
Performance |
| Timeline |
| American Electric Power |
| Red Electrica Corporacion |
American Electric and Red Electrica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Red Electrica
The main advantage of trading using opposite American Electric and Red Electrica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Red Electrica 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 Red Electrica will offset losses from the drop in Red Electrica's long position.| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
| Red Electrica vs. NVIDIA | Red Electrica vs. Blacksky Technology | Red Electrica vs. Crowdstrike Holdings | Red Electrica vs. Cintas |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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