Correlation Between AES and American States

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

By analyzing existing cross correlation between The AES and American States Water, you can compare the effects of market volatilities on AES and American States 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 American States. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES and American States.

Diversification Opportunities for AES and American States

0.23

Correlation Coefficient

AES  American States

Modest diversification

The 3 months correlation between AES and American is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding The AES and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water 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 American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of AES i.e., AES and American States go up and down completely randomly.

Pair Corralation between AES and American States

Considering the 90-day investment horizon The AES is expected to generate 1.87 times more return on investment than American States. However, AES is 1.87 times more volatile than American States Water. It trades about 0.02 of its potential returns per unit of risk. American States Water is currently generating about -0.01 per unit of risk. If you would invest  1,245  in The AES on December 28, 2024 and sell it today you would earn a total of  4.00  from holding The AES or generate 0.32% return on investment over 90 days.

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

The AES  vs.  American States Water

AES

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The AES are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, AES is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

American States Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, American States is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with AES and American States

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

The idea behind The AES and American States Water 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 Commodity Directory module to find actively traded commodities issued by global exchanges.