Correlation Between Edison International and American Electric
Can any of the company-specific risk be diversified away by investing in both Edison International 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 Edison International and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Edison International and American Electric Power, you can compare the effects of market volatilities on Edison International 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 Edison International with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and American Electric.
Diversification Opportunities for Edison International and American Electric
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Edison and American is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Edison International 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 Edison International 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 Edison International 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 Edison International i.e., Edison International and American Electric go up and down completely randomly.
Pair Corralation between Edison International and American Electric
Assuming the 90 days horizon Edison International is expected to generate 0.46 times more return on investment than American Electric. However, Edison International is 2.19 times less risky than American Electric. It trades about 0.29 of its potential returns per unit of risk. American Electric Power is currently generating about 0.1 per unit of risk. If you would invest 7,694 in Edison International on August 30, 2024 and sell it today you would earn a total of 578.00 from holding Edison International or generate 7.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Edison International vs. American Electric Power
Performance |
| Timeline |
| Edison International |
| American Electric Power |
Edison International and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Edison International and American Electric
The main advantage of trading using opposite Edison International and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edison International 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.| Edison International vs. Apple Inc | Edison International vs. Apple Inc | Edison International vs. Apple Inc | Edison International vs. Apple Inc |
| American Electric vs. Superior Plus Corp | American Electric vs. SIVERS SEMICONDUCTORS AB | American Electric vs. Talanx AG | American Electric vs. 2G ENERGY |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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