Correlation Between MGE Energy and Ameren Corp

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

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

Diversification Opportunities for MGE Energy and Ameren Corp

-0.25

Correlation Coefficient

MGE Energy  Ameren Corp

Very good diversification

The 3 months correlation between MGE and Ameren is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and Ameren Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameren Corp and MGE 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 MGE Energy 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 MGE Energy i.e., MGE Energy and Ameren Corp go up and down completely randomly.

Pair Corralation between MGE Energy and Ameren Corp

Given the investment horizon of 90 days MGE Energy is expected to generate 1.21 times more return on investment than Ameren Corp. However, MGE Energy is 1.21 times more volatile than Ameren Corp. It trades about 0.3 of its potential returns per unit of risk. Ameren Corp is currently generating about 0.29 per unit of risk. If you would invest  8,859  in MGE Energy on November 28, 2024 and sell it today you would earn a total of  554.00  from holding MGE Energy or generate 6.25% return on investment over 90 days.

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

MGE Energy  vs.  Ameren Corp

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 latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Ameren Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ameren Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Ameren Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MGE Energy and Ameren Corp

The main advantage of trading using opposite MGE Energy and Ameren Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGE Energy 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 MGE Energy 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.