Correlation Between MidCap Financial and American Electric

Can any of the company-specific risk be diversified away by investing in both MidCap Financial 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 MidCap Financial and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MidCap Financial Investment and American Electric Power, you can compare the effects of market volatilities on MidCap Financial 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 MidCap Financial with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of MidCap Financial and American Electric.

Diversification Opportunities for MidCap Financial and American Electric

0.2

Correlation Coefficient

MidCap Financial  American Electric

Modest diversification

The 3 months correlation between MidCap and American is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment 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 MidCap Financial 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 MidCap Financial Investment 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 MidCap Financial i.e., MidCap Financial and American Electric go up and down completely randomly.

Pair Corralation between MidCap Financial and American Electric

Assuming the 90 days trading horizon MidCap Financial is expected to generate 2.0 times less return on investment than American Electric. In addition to that, MidCap Financial is 1.07 times more volatile than American Electric Power. It trades about 0.05 of its total potential returns per unit of risk. American Electric Power is currently generating about 0.11 per unit of volatility. If you would invest  6,851  in American Electric Power on October 24, 2024 and sell it today you would earn a total of  2,549  from holding American Electric Power or generate 37.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MidCap Financial Investment  vs.  American Electric Power

MidCap Financial Inv

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, MidCap Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

American Electric Power

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, American Electric is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MidCap Financial and American Electric

The main advantage of trading using opposite MidCap Financial and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MidCap Financial 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 MidCap Financial Investment 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.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.