Correlation Between WPP PLC and American Electric
Can any of the company-specific risk be diversified away by investing in both WPP PLC 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 WPP PLC and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WPP PLC and American Electric Power, you can compare the effects of market volatilities on WPP PLC 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 WPP PLC with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPP PLC and American Electric.
Diversification Opportunities for WPP PLC and American Electric
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between WPP and American is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC 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 WPP PLC 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 WPP PLC 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 WPP PLC i.e., WPP PLC and American Electric go up and down completely randomly.
Pair Corralation between WPP PLC and American Electric
Assuming the 90 days trading horizon WPP PLC is expected to generate 1.19 times more return on investment than American Electric. However, WPP PLC is 1.19 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 0.02 per unit of risk. If you would invest 75,566 in WPP PLC on August 29, 2024 and sell it today you would earn a total of 9,654 from holding WPP PLC or generate 12.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 98.39% |
| Values | Daily Returns |
WPP PLC vs. American Electric Power
Performance |
| Timeline |
| WPP PLC |
| American Electric Power |
WPP PLC and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WPP PLC and American Electric
The main advantage of trading using opposite WPP PLC and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WPP PLC 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.| WPP PLC vs. AMG Advanced Metallurgical | WPP PLC vs. Central Asia Metals | WPP PLC vs. Metals Exploration Plc | WPP PLC vs. Hochschild Mining plc |
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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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