Correlation Between RWE AG and AES

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

By analyzing existing cross correlation between RWE AG PK and The AES, you can compare the effects of market volatilities on RWE AG and AES 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 RWE AG with a short position of AES. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and AES.

Diversification Opportunities for RWE AG and AES

0.35

Correlation Coefficient

RWE AG  AES

Weak diversification

The 3 months correlation between RWE and AES is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and The AES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AES and RWE AG 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 RWE AG PK are associated (or correlated) with AES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AES has no effect on the direction of RWE AG i.e., RWE AG and AES go up and down completely randomly.

Pair Corralation between RWE AG and AES

Assuming the 90 days horizon RWE AG PK is expected to generate 0.59 times more return on investment than AES. However, RWE AG PK is 1.7 times less risky than AES. It trades about 0.18 of its potential returns per unit of risk. The AES is currently generating about 0.01 per unit of risk. If you would invest  2,964  in RWE AG PK on December 26, 2024 and sell it today you would earn a total of  573.00  from holding RWE AG PK or generate 19.33% return on investment over 90 days.

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

RWE AG PK  vs.  The AES

RWE AG PK

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RWE AG PK are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, RWE AG showed solid returns over the last few months and may actually be approaching a breakup point.

AES

Risk-Adjusted Performance

Weak

Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, AES is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with RWE AG and AES

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

The idea behind RWE AG PK and The AES 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .