Correlation Between Air T and American Electric
Can any of the company-specific risk be diversified away by investing in both Air T and American Electric 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 Air T and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air T Inc and American Electric Power, you can compare the effects of market volatilities on Air T and American Electric 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 Air T with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air T and American Electric.
Diversification Opportunities for Air T and American Electric
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Air and American is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Air T Inc and American Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Electric Power and Air T 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 Air T Inc are associated (or correlated) with American Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Electric Power has no effect on the direction of Air T i.e., Air T and American Electric go up and down completely randomly.
Pair Corralation between Air T and American Electric
Assuming the 90 days horizon Air T Inc is expected to generate 5.83 times more return on investment than American Electric. However, Air T is 5.83 times more volatile than American Electric Power. It trades about 0.02 of its potential returns per unit of risk. American Electric Power is currently generating about 0.0 per unit of risk. If you would invest 2,103 in Air T Inc on August 27, 2024 and sell it today you would lose (363.00) from holding Air T Inc or give up 17.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 33.83% |
| Values | Daily Returns |
Air T Inc vs. American Electric Power
Performance |
| Timeline |
| Air T Inc |
| American Electric Power |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Air T and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air T and American Electric
The main advantage of trading using opposite Air T and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air T position performs unexpectedly, American Electric 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 American Electric will offset losses from the drop in American Electric's long position.The idea behind Air T Inc and American Electric Power 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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