Correlation Between Duke Energy and American Electric
Can any of the company-specific risk be diversified away by investing in both Duke Energy 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 Duke Energy and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Duke Energy and American Electric Power, you can compare the effects of market volatilities on Duke Energy 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 Duke Energy with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Duke Energy and American Electric.
Diversification Opportunities for Duke Energy and American Electric
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Duke and American is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy 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 Duke Energy 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 Duke Energy 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 Duke Energy i.e., Duke Energy and American Electric go up and down completely randomly.
Pair Corralation between Duke Energy and American Electric
Considering the 90-day investment horizon Duke Energy is expected to generate 0.94 times more return on investment than American Electric. However, Duke Energy is 1.06 times less risky than American Electric. It trades about 0.12 of its potential returns per unit of risk. American Electric Power is currently generating about 0.09 per unit of risk. If you would invest 9,930 in Duke Energy on August 24, 2024 and sell it today you would earn a total of 1,556 from holding Duke Energy or generate 15.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Duke Energy vs. American Electric Power
Performance |
| Timeline |
| Duke Energy |
| American Electric Power |
Duke Energy and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Duke Energy and American Electric
The main advantage of trading using opposite Duke Energy and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Duke Energy 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.| Duke Energy vs. Consolidated Edison | Duke Energy vs. Dominion Energy | Duke Energy vs. American Electric Power | Duke Energy vs. Nextera Energy |
| American Electric vs. Southern Company | American Electric vs. Dominion Energy | American Electric vs. Nextera Energy | American Electric vs. Consolidated Edison |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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