Correlation Between AES and Essential Utilities
Can any of the company-specific risk be diversified away by investing in both AES and Essential Utilities 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 AES and Essential Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The AES and Essential Utilities, you can compare the effects of market volatilities on AES and Essential Utilities 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 AES with a short position of Essential Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES and Essential Utilities.
Diversification Opportunities for AES and Essential Utilities
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between AES and Essential is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Essential Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Utilities and AES 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 The AES are associated (or correlated) with Essential Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Utilities has no effect on the direction of AES i.e., AES and Essential Utilities go up and down completely randomly.
Pair Corralation between AES and Essential Utilities
Considering the 90-day investment horizon The AES is expected to under-perform the Essential Utilities. In addition to that, AES is 2.62 times more volatile than Essential Utilities. It trades about -0.26 of its total potential returns per unit of risk. Essential Utilities is currently generating about 0.14 per unit of volatility. If you would invest 3,842 in Essential Utilities on August 31, 2024 and sell it today you would earn a total of 161.00 from holding Essential Utilities or generate 4.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The AES vs. Essential Utilities
Performance |
| Timeline |
| AES |
| Essential Utilities |
AES and Essential Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AES and Essential Utilities
The main advantage of trading using opposite AES and Essential Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AES position performs unexpectedly, Essential Utilities 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 Essential Utilities will offset losses from the drop in Essential Utilities' long position.The idea behind The AES and Essential Utilities 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.| Essential Utilities vs. California Water Service | Essential Utilities vs. SJW Group Common | Essential Utilities vs. Middlesex Water | Essential Utilities vs. Global Water Resources |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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