Correlation Between American Electric and CLP Holdings

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both American Electric and CLP Holdings 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 CLP Holdings 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 CLP Holdings, you can compare the effects of market volatilities on American Electric and CLP Holdings 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 CLP Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and CLP Holdings.

Diversification Opportunities for American Electric and CLP Holdings

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between American and CLP is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and CLP Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLP Holdings 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 CLP Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLP Holdings has no effect on the direction of American Electric i.e., American Electric and CLP Holdings go up and down completely randomly.

Pair Corralation between American Electric and CLP Holdings

Considering the 90-day investment horizon American Electric Power is expected to generate 1.27 times more return on investment than CLP Holdings. However, American Electric is 1.27 times more volatile than CLP Holdings. It trades about -0.16 of its potential returns per unit of risk. CLP Holdings is currently generating about -0.31 per unit of risk. If you would invest  9,510  in American Electric Power on October 11, 2024 and sell it today you would lose (284.00) from holding American Electric Power or give up 2.99% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

American Electric Power  vs.  CLP Holdings

 Performance 
       Timeline  
American Electric Power 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days American Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, American Electric is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.
CLP Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days CLP Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, CLP Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Electric and CLP Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Electric and CLP Holdings

The main advantage of trading using opposite American Electric and CLP Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, CLP Holdings 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 CLP Holdings will offset losses from the drop in CLP Holdings' long position.
The idea behind American Electric Power and CLP Holdings 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

Other Complementary Tools

Portfolio Center
All portfolio management and optimization tools to improve performance of your portfolios
Sectors
List of equity sectors categorizing publicly traded companies based on their primary business activities
Stock Screener
Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook.
Price Transformation
Use Price Transformation models to analyze the depth of different equity instruments across global markets
Portfolio Backtesting
Avoid under-diversification and over-optimization by backtesting your portfolios