Correlation Between Edison International and Ameren Corp

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

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

Diversification Opportunities for Edison International and Ameren Corp

-0.71

Correlation Coefficient

Edison International  Ameren Corp

Pay attention - limited upside

The 3 months correlation between Edison and Ameren is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Ameren Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameren Corp and Edison International 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 Edison International are associated (or correlated) with Ameren Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameren Corp has no effect on the direction of Edison International i.e., Edison International and Ameren Corp go up and down completely randomly.

Pair Corralation between Edison International and Ameren Corp

Considering the 90-day investment horizon Edison International is expected to under-perform the Ameren Corp. In addition to that, Edison International is 2.61 times more volatile than Ameren Corp. It trades about -0.24 of its total potential returns per unit of risk. Ameren Corp is currently generating about 0.15 per unit of volatility. If you would invest  9,220  in Ameren Corp on December 1, 2024 and sell it today you would earn a total of  936.00  from holding Ameren Corp or generate 10.15% return on investment over 90 days.

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

Edison International  vs.  Ameren Corp

Edison International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edison International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ameren Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ameren Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Ameren Corp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Edison International and Ameren Corp

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

The idea behind Edison International and Ameren Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.