Correlation Between AES and SSE PLC

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

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

Diversification Opportunities for AES and SSE PLC

0.63

Correlation Coefficient

AES  SSE PLC

Poor diversification

The 3 months correlation between AES and SSE is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding The AES and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of AES i.e., AES and SSE PLC go up and down completely randomly.

Pair Corralation between AES and SSE PLC

Considering the 90-day investment horizon The AES is expected to generate 2.02 times more return on investment than SSE PLC. However, AES is 2.02 times more volatile than SSE PLC ADR. It trades about 0.03 of its potential returns per unit of risk. SSE PLC ADR is currently generating about 0.0 per unit of risk. If you would invest  1,267  in The AES on December 17, 2024 and sell it today you would earn a total of  38.00  from holding The AES or generate 3.0% return on investment over 90 days.

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

The AES  vs.  SSE PLC ADR

AES

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The AES are ranked lower than 2 (%) 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.

SSE PLC ADR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with AES and SSE PLC

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

The idea behind The AES and SSE PLC ADR 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.