Correlation Between Ameren Illinois and Avangrid

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

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

Diversification Opportunities for Ameren Illinois and Avangrid

-0.35

Correlation Coefficient

Ameren Illinois  Avangrid

Very good diversification

The 3 months correlation between Ameren and Avangrid is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ameren Illinois and Avangrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avangrid and Ameren Illinois 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 Ameren Illinois are associated (or correlated) with Avangrid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avangrid has no effect on the direction of Ameren Illinois i.e., Ameren Illinois and Avangrid go up and down completely randomly.

Pair Corralation between Ameren Illinois and Avangrid

Assuming the 90 days horizon Ameren Illinois is expected to generate 1.13 times less return on investment than Avangrid. In addition to that, Ameren Illinois is 1.22 times more volatile than Avangrid. It trades about 0.04 of its total potential returns per unit of risk. Avangrid is currently generating about 0.06 per unit of volatility. If you would invest  3,073  in Avangrid on September 17, 2024 and sell it today you would earn a total of  498.00  from holding Avangrid or generate 16.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.42%
Values	Daily Returns

Ameren Illinois  vs.  Avangrid

Ameren Illinois

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ameren Illinois has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Ameren Illinois is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Avangrid

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Avangrid is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ameren Illinois and Avangrid

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

The idea behind Ameren Illinois and Avangrid 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.