Correlation Between Allete and AES

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

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

Diversification Opportunities for Allete and AES

-0.35

Correlation Coefficient

Allete  AES

Very good diversification

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

Pair Corralation between Allete and AES

Considering the 90-day investment horizon Allete Inc is expected to generate 0.1 times more return on investment than AES. However, Allete Inc is 10.38 times less risky than AES. It trades about 0.18 of its potential returns per unit of risk. The AES is currently generating about 0.01 per unit of risk. If you would invest  6,372  in Allete Inc on December 27, 2024 and sell it today you would earn a total of  191.00  from holding Allete Inc or generate 3.0% return on investment over 90 days.

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

Allete Inc  vs.  The AES

Allete Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 14 (%) 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.

AES

Risk-Adjusted Performance

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 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.

Pair Trading with Allete and AES

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

The idea behind Allete Inc and The AES 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..