Correlation Between Alliant Energy and MGE Energy

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

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

Diversification Opportunities for Alliant Energy and MGE Energy

0.47

Correlation Coefficient

Alliant Energy  MGE Energy

Very weak diversification

The 3 months correlation between Alliant and MGE is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Alliant Energy Corp and MGE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGE Energy and Alliant Energy 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 Alliant Energy Corp are associated (or correlated) with MGE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGE Energy has no effect on the direction of Alliant Energy i.e., Alliant Energy and MGE Energy go up and down completely randomly.

Pair Corralation between Alliant Energy and MGE Energy

Considering the 90-day investment horizon Alliant Energy Corp is expected to generate 0.74 times more return on investment than MGE Energy. However, Alliant Energy Corp is 1.35 times less risky than MGE Energy. It trades about 0.11 of its potential returns per unit of risk. MGE Energy is currently generating about 0.0 per unit of risk. If you would invest  5,882  in Alliant Energy Corp on December 28, 2024 and sell it today you would earn a total of  476.00  from holding Alliant Energy Corp or generate 8.09% return on investment over 90 days.

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

Alliant Energy Corp  vs.  MGE Energy

Alliant Energy Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alliant Energy Corp are ranked lower than 8 (%) 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 April 2025.

MGE Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days MGE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MGE Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alliant Energy and MGE Energy

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

The idea behind Alliant Energy Corp and MGE Energy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.