Correlation Between Altria and 0010EPAF5

Can any of the company-specific risk be diversified away by investing in both Altria and 0010EPAF5 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 Altria and 0010EPAF5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Altria Group and AEP TEX CENT, you can compare the effects of market volatilities on Altria and 0010EPAF5 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 Altria with a short position of 0010EPAF5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altria and 0010EPAF5.

Diversification Opportunities for Altria and 0010EPAF5

0.51

Correlation Coefficient

Altria  0010EPAF5

Very weak diversification

The 3 months correlation between Altria and 0010EPAF5 is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and AEP TEX CENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX CENT and Altria 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 Altria Group are associated (or correlated) with 0010EPAF5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX CENT has no effect on the direction of Altria i.e., Altria and 0010EPAF5 go up and down completely randomly.

Pair Corralation between Altria and 0010EPAF5

Allowing for the 90-day total investment horizon Altria Group is expected to generate 1.79 times more return on investment than 0010EPAF5. However, Altria is 1.79 times more volatile than AEP TEX CENT. It trades about 0.07 of its potential returns per unit of risk. AEP TEX CENT is currently generating about -0.06 per unit of risk. If you would invest  4,889  in Altria Group on October 11, 2024 and sell it today you would earn a total of  260.00  from holding Altria Group or generate 5.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	78.69%
Values	Daily Returns

Altria Group  vs.  AEP TEX CENT

Altria Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Altria is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

AEP TEX CENT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AEP TEX CENT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, 0010EPAF5 is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Altria and 0010EPAF5

The main advantage of trading using opposite Altria and 0010EPAF5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Altria position performs unexpectedly, 0010EPAF5 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 0010EPAF5 will offset losses from the drop in 0010EPAF5's long position.

The idea behind Altria Group and AEP TEX CENT 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.