Correlation Between Algonquin Power and American Electric

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

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

Diversification Opportunities for Algonquin Power and American Electric

0.0

Correlation Coefficient

Algonquin Power  American Electric

Pay attention - limited upside

The 3 months correlation between Algonquin and American is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and American Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Electric Power and Algonquin Power 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 Algonquin Power Utilities are associated (or correlated) with American Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Electric Power has no effect on the direction of Algonquin Power i.e., Algonquin Power and American Electric go up and down completely randomly.

Pair Corralation between Algonquin Power and American Electric

If you would invest (100.00) in American Electric Power on December 30, 2024 and sell it today you would earn a total of  100.00  from holding American Electric Power or generate -100.0% return on investment over 90 days.

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

Algonquin Power Utilities  vs.  American Electric Power

Algonquin Power Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Algonquin Power is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

American Electric Power

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Algonquin Power and American Electric

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

The idea behind Algonquin Power Utilities and American Electric Power 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.