Correlation Between Entergy and American Electric
Can any of the company-specific risk be diversified away by investing in both Entergy 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 Entergy and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Entergy and American Electric Power, you can compare the effects of market volatilities on Entergy 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 Entergy with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entergy and American Electric.
Diversification Opportunities for Entergy and American Electric
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Entergy and American is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Entergy 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 Entergy 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 Entergy 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 Entergy i.e., Entergy and American Electric go up and down completely randomly.
Pair Corralation between Entergy and American Electric
Considering the 90-day investment horizon Entergy is expected to generate 1.64 times more return on investment than American Electric. However, Entergy is 1.64 times more volatile than American Electric Power. It trades about 0.17 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 10,564 in Entergy on August 24, 2024 and sell it today you would earn a total of 4,591 from holding Entergy or generate 43.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Entergy vs. American Electric Power
Performance |
| Timeline |
| Entergy |
| American Electric Power |
Entergy and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Entergy and American Electric
The main advantage of trading using opposite Entergy and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy 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 Entergy 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.| 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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