Correlation Between Exelon and Alliant Energy

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

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

Diversification Opportunities for Exelon and Alliant Energy

0.52

Correlation Coefficient

Exelon  Alliant Energy

Very weak diversification

The 3 months correlation between Exelon and Alliant is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Exelon and Alliant Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliant Energy Corp and Exelon 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 Exelon are associated (or correlated) with Alliant Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliant Energy Corp has no effect on the direction of Exelon i.e., Exelon and Alliant Energy go up and down completely randomly.

Pair Corralation between Exelon and Alliant Energy

Considering the 90-day investment horizon Exelon is expected to generate 1.99 times less return on investment than Alliant Energy. But when comparing it to its historical volatility, Exelon is 1.17 times less risky than Alliant Energy. It trades about 0.07 of its potential returns per unit of risk. Alliant Energy Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,780  in Alliant Energy Corp on August 30, 2024 and sell it today you would earn a total of  579.00  from holding Alliant Energy Corp or generate 10.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Exelon  vs.  Alliant Energy Corp

Exelon

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Exelon is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Alliant Energy Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliant Energy Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alliant Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Exelon and Alliant Energy

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

The idea behind Exelon and Alliant Energy 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.