Correlation Between American Electric and Brighthouse Financial
Can any of the company-specific risk be diversified away by investing in both American Electric and Brighthouse Financial 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 Brighthouse Financial 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 Brighthouse Financial, you can compare the effects of market volatilities on American Electric and Brighthouse Financial 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 Brighthouse Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Brighthouse Financial.
Diversification Opportunities for American Electric and Brighthouse Financial
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Brighthouse is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial 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 Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of American Electric i.e., American Electric and Brighthouse Financial go up and down completely randomly.
Pair Corralation between American Electric and Brighthouse Financial
If you would invest 5,028 in American Electric Power on August 27, 2024 and sell it today you would earn a total of 0.00 from holding American Electric Power or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 4.76% |
| Values | Daily Returns |
American Electric Power vs. Brighthouse Financial
Performance |
| Timeline |
| American Electric Power |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Brighthouse Financial |
American Electric and Brighthouse Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Brighthouse Financial
The main advantage of trading using opposite American Electric and Brighthouse Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Brighthouse Financial 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 Brighthouse Financial will offset losses from the drop in Brighthouse Financial's long position.The idea behind American Electric Power and Brighthouse Financial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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