Correlation Between American Electric and Rightsmile

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

Diversification Opportunities for American Electric and Rightsmile

-0.11

Correlation Coefficient

American Electric  Rightsmile

Good diversification

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

Pair Corralation between American Electric and Rightsmile

If you would invest  9,745  in American Electric Power on September 3, 2024 and sell it today you would earn a total of  241.00  from holding American Electric Power or generate 2.47% return on investment over 90 days.

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

American Electric Power  vs.  Rightsmile

American Electric Power

Risk-Adjusted Performance

0 of 100

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 latest stock price agitation, may contribute to short-term losses for the retail investors.

Rightsmile

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rightsmile are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting technical and fundamental indicators, Rightsmile demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Electric and Rightsmile

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

The idea behind American Electric Power and Rightsmile 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.