Correlation Between American Electric and WEC Energy

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

Diversification Opportunities for American Electric and WEC Energy

0.42

Correlation Coefficient

American Electric  WEC Energy

Very weak diversification

The 3 months correlation between American and WEC is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and WEC Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEC Energy Group 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 WEC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEC Energy Group has no effect on the direction of American Electric i.e., American Electric and WEC Energy go up and down completely randomly.

Pair Corralation between American Electric and WEC Energy

Considering the 90-day investment horizon American Electric Power is expected to generate 1.08 times more return on investment than WEC Energy. However, American Electric is 1.08 times more volatile than WEC Energy Group. It trades about 0.03 of its potential returns per unit of risk. WEC Energy Group is currently generating about 0.03 per unit of risk. If you would invest  8,203  in American Electric Power on October 4, 2024 and sell it today you would earn a total of  1,020  from holding American Electric Power or generate 12.43% return on investment over 90 days.

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

American Electric Power  vs.  WEC Energy Group

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 latest unfluctuating performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

WEC Energy Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WEC Energy Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, WEC Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Electric and WEC Energy

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

The idea behind American Electric Power and WEC Energy Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.