Correlation Between AES Corp and RWE AG

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Can any of the company-specific risk be diversified away by investing in both AES Corp and RWE AG 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 Corp and RWE AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AES Corp Unit and RWE AG PK, you can compare the effects of market volatilities on AES Corp and RWE AG 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 Corp with a short position of RWE AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES Corp and RWE AG.

Diversification Opportunities for AES Corp and RWE AG

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between AES and RWE is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding AES Corp Unit and RWE AG PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE AG PK and AES Corp 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 AES Corp Unit are associated (or correlated) with RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG PK has no effect on the direction of AES Corp i.e., AES Corp and RWE AG go up and down completely randomly.

Pair Corralation between AES Corp and RWE AG

If you would invest  8,496  in AES Corp Unit on August 31, 2024 and sell it today you would earn a total of  0.00  from holding AES Corp Unit or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy1.59%
ValuesDaily Returns

AES Corp Unit  vs.  RWE AG PK

 Performance 
       Timeline  
AES Corp Unit 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days AES Corp Unit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, AES Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
RWE AG PK 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days RWE AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

AES Corp and RWE AG Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with AES Corp and RWE AG

The main advantage of trading using opposite AES Corp and RWE AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AES Corp position performs unexpectedly, RWE AG 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 RWE AG will offset losses from the drop in RWE AG's long position.
The idea behind AES Corp Unit and RWE AG PK 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.
Check out your portfolio center.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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