Correlation Between American Electric and Apple

Can any of the company-specific risk be diversified away by investing in both American Electric and Apple 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 Apple 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 Apple Inc, you can compare the effects of market volatilities on American Electric and Apple 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 Apple. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Apple.

Diversification Opportunities for American Electric and Apple

-0.12

Correlation Coefficient

American Electric  Apple

Good diversification

The 3 months correlation between American and Apple is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Apple Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apple Inc 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 Apple. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apple Inc has no effect on the direction of American Electric i.e., American Electric and Apple go up and down completely randomly.

Pair Corralation between American Electric and Apple

Assuming the 90 days trading horizon American Electric Power is expected to generate 0.73 times more return on investment than Apple. However, American Electric Power is 1.37 times less risky than Apple. It trades about 0.13 of its potential returns per unit of risk. Apple Inc is currently generating about 0.07 per unit of risk. If you would invest  6,847  in American Electric Power on October 23, 2024 and sell it today you would earn a total of  2,653  from holding American Electric Power or generate 38.75% return on investment over 90 days.

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

American Electric Power  vs.  Apple Inc

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 very healthy basic indicators, American Electric is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Apple Inc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Apple is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Electric and Apple

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

The idea behind American Electric Power and Apple Inc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.