Correlation Between American Electric and Bio-Techne Corp

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

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

Diversification Opportunities for American Electric and Bio-Techne Corp

0.11

Correlation Coefficient

American Electric  Bio-Techne Corp

Average diversification

The 3 months correlation between American and Bio-Techne is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Bio Techne Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bio Techne Corp and American Electric 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 American Electric Power are associated (or correlated) with Bio-Techne Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bio Techne Corp has no effect on the direction of American Electric i.e., American Electric and Bio-Techne Corp go up and down completely randomly.

Pair Corralation between American Electric and Bio-Techne Corp

Assuming the 90 days trading horizon American Electric Power is expected to generate 0.47 times more return on investment than Bio-Techne Corp. However, American Electric Power is 2.13 times less risky than Bio-Techne Corp. It trades about 0.12 of its potential returns per unit of risk. Bio Techne Corp is currently generating about 0.03 per unit of risk. If you would invest  6,910  in American Electric Power on October 24, 2024 and sell it today you would earn a total of  2,490  from holding American Electric Power or generate 36.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

American Electric Power  vs.  Bio Techne Corp

American Electric Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, American Electric is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Bio Techne Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bio Techne Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bio-Techne Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Electric and Bio-Techne Corp

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

The idea behind American Electric Power and Bio Techne 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.