Correlation Between American Electric and Ameren Corp

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

Diversification Opportunities for American Electric and Ameren Corp

0.96

Correlation Coefficient

American Electric  Ameren Corp

Almost no diversification

The 3 months correlation between American and Ameren is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Ameren Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameren 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 Ameren Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameren Corp has no effect on the direction of American Electric i.e., American Electric and Ameren Corp go up and down completely randomly.

Pair Corralation between American Electric and Ameren Corp

Considering the 90-day investment horizon American Electric Power is expected to generate 1.07 times more return on investment than Ameren Corp. However, American Electric is 1.07 times more volatile than Ameren Corp. It trades about 0.21 of its potential returns per unit of risk. Ameren Corp is currently generating about 0.18 per unit of risk. If you would invest  9,039  in American Electric Power on December 19, 2024 and sell it today you would earn a total of  1,545  from holding American Electric Power or generate 17.09% return on investment over 90 days.

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

American Electric Power  vs.  Ameren Corp

American Electric Power

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, American Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Ameren Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ameren Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Ameren Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Electric and Ameren Corp

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

The idea behind American Electric Power and Ameren 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.