Correlation Between Ameren Corp and National Grid

Can any of the company-specific risk be diversified away by investing in both Ameren Corp and National Grid 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 Ameren Corp and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ameren Corp and National Grid PLC, you can compare the effects of market volatilities on Ameren Corp and National Grid 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 Ameren Corp with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ameren Corp and National Grid.

Diversification Opportunities for Ameren Corp and National Grid

0.82

Correlation Coefficient

Ameren Corp  National Grid

Very poor diversification

The 3 months correlation between Ameren and National is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ameren Corp and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC and Ameren Corp 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 Ameren Corp are associated (or correlated) with National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Ameren Corp i.e., Ameren Corp and National Grid go up and down completely randomly.

Pair Corralation between Ameren Corp and National Grid

Considering the 90-day investment horizon Ameren Corp is expected to generate 1.0 times less return on investment than National Grid. But when comparing it to its historical volatility, Ameren Corp is 1.11 times less risky than National Grid. It trades about 0.14 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,921  in National Grid PLC on December 29, 2024 and sell it today you would earn a total of  636.00  from holding National Grid PLC or generate 10.74% return on investment over 90 days.

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

Ameren Corp  vs.  National Grid PLC

Ameren Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ameren Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Ameren Corp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

National Grid PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Grid PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, National Grid may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ameren Corp and National Grid

The main advantage of trading using opposite Ameren Corp and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ameren Corp position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid's long position.

The idea behind Ameren Corp and National Grid PLC 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.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.