Correlation Between PGE and American Electric
Can any of the company-specific risk be diversified away by investing in both PGE 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 PGE and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PGE Corporation and American Electric Power, you can compare the effects of market volatilities on PGE 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 PGE with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of PGE and American Electric.
Diversification Opportunities for PGE and American Electric
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between PGE and American is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding PGE Corp. 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 PGE 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 PGE Corporation 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 PGE i.e., PGE and American Electric go up and down completely randomly.
Pair Corralation between PGE and American Electric
Assuming the 90 days horizon PGE Corporation is expected to under-perform the American Electric. In addition to that, PGE is 2.11 times more volatile than American Electric Power. It trades about -0.18 of its total potential returns per unit of risk. American Electric Power is currently generating about 0.21 per unit of volatility. If you would invest 8,900 in American Electric Power on October 21, 2024 and sell it today you would earn a total of 500.00 from holding American Electric Power or generate 5.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PGE Corp. vs. American Electric Power
Performance |
| Timeline |
| PGE Corporation |
| American Electric Power |
PGE and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PGE and American Electric
The main advantage of trading using opposite PGE and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PGE 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 PGE Corporation 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. Perseus Mining Limited | American Electric vs. GALENA MINING LTD | American Electric vs. USWE SPORTS AB | American Electric vs. Gaming and Leisure |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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