Correlation Between AES and Allete

Can any of the company-specific risk be diversified away by investing in both AES and Allete 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 AES and Allete into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The AES and Allete Inc, you can compare the effects of market volatilities on AES and Allete 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 AES with a short position of Allete. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES and Allete.

Diversification Opportunities for AES and Allete

-0.65

Correlation Coefficient

AES  Allete

Excellent diversification

The 3 months correlation between AES and Allete is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc and AES 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 The AES are associated (or correlated) with Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of AES i.e., AES and Allete go up and down completely randomly.

Pair Corralation between AES and Allete

Considering the 90-day investment horizon The AES is expected to under-perform the Allete. In addition to that, AES is 6.87 times more volatile than Allete Inc. It trades about -0.13 of its total potential returns per unit of risk. Allete Inc is currently generating about 0.12 per unit of volatility. If you would invest  6,146  in Allete Inc on August 30, 2024 and sell it today you would earn a total of  341.00  from holding Allete Inc or generate 5.55% return on investment over 90 days.

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

The AES  vs.  Allete Inc

AES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Allete Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Allete is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AES and Allete

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

The idea behind The AES and Allete 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.