Correlation Between CVR Energy and AES Corp

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Can any of the company-specific risk be diversified away by investing in both CVR Energy and AES Corp 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 CVR Energy and AES Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CVR Energy and AES Corp, you can compare the effects of market volatilities on CVR Energy and AES Corp 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 CVR Energy with a short position of AES Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of CVR Energy and AES Corp.

Diversification Opportunities for CVR Energy and AES Corp

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between CVR and AES is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding CVR Energy and AES Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AES Corp and CVR 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 CVR Energy are associated (or correlated) with AES Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AES Corp has no effect on the direction of CVR Energy i.e., CVR Energy and AES Corp go up and down completely randomly.

Pair Corralation between CVR Energy and AES Corp

Assuming the 90 days trading horizon CVR Energy is expected to under-perform the AES Corp. In addition to that, CVR Energy is 1.29 times more volatile than AES Corp. It trades about -0.04 of its total potential returns per unit of risk. AES Corp is currently generating about -0.05 per unit of volatility. If you would invest  1,734  in AES Corp on October 10, 2024 and sell it today you would lose (510.00) from holding AES Corp or give up 29.41% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy96.41%
ValuesDaily Returns

CVR Energy  vs.  AES Corp

 Performance 
       Timeline  
CVR Energy 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days CVR Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
AES Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days AES Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

CVR Energy and AES Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CVR Energy and AES Corp

The main advantage of trading using opposite CVR Energy and AES Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVR Energy position performs unexpectedly, AES Corp 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 AES Corp will offset losses from the drop in AES Corp's long position.
The idea behind CVR Energy and AES Corp 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.
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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