Correlation Between Allete and Vanguard Utilities

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

By analyzing existing cross correlation between Allete Inc and Vanguard Utilities Index, you can compare the effects of market volatilities on Allete and Vanguard Utilities 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 Vanguard Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allete and Vanguard Utilities.

Diversification Opportunities for Allete and Vanguard Utilities

0.72

Correlation Coefficient

Allete  Vanguard Utilities

Poor diversification

The 3 months correlation between Allete and Vanguard is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Allete Inc and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities Index 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 Vanguard Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of Allete i.e., Allete and Vanguard Utilities go up and down completely randomly.

Pair Corralation between Allete and Vanguard Utilities

Considering the 90-day investment horizon Allete is expected to generate 1.28 times less return on investment than Vanguard Utilities. But when comparing it to its historical volatility, Allete Inc is 3.98 times less risky than Vanguard Utilities. It trades about 0.17 of its potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,211  in Vanguard Utilities Index on December 29, 2024 and sell it today you would earn a total of  269.00  from holding Vanguard Utilities Index or generate 3.28% return on investment over 90 days.

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

Allete Inc  vs.  Vanguard Utilities Index

Allete Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 13 (%) 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.

Vanguard Utilities Index

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Allete and Vanguard Utilities

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

The idea behind Allete Inc and Vanguard Utilities Index 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.