Correlation Between RWE AG and Allete

Can any of the company-specific risk be diversified away by investing in both RWE AG and Allete 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 Allete 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 Allete Inc, you can compare the effects of market volatilities on RWE AG and Allete 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 Allete. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and Allete.

Diversification Opportunities for RWE AG and Allete

-0.68

Correlation Coefficient

RWE AG  Allete

Excellent diversification

The 3 months correlation between RWE and Allete is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc 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 Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of RWE AG i.e., RWE AG and Allete go up and down completely randomly.

Pair Corralation between RWE AG and Allete

Assuming the 90 days horizon RWE AG PK is expected to under-perform the Allete. In addition to that, RWE AG is 4.56 times more volatile than Allete Inc. It trades about -0.09 of its total potential returns per unit of risk. Allete Inc is currently generating about 0.18 per unit of volatility. If you would invest  6,267  in Allete Inc on August 31, 2024 and sell it today you would earn a total of  221.00  from holding Allete Inc or generate 3.53% return on investment over 90 days.

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

RWE AG PK  vs.  Allete Inc

RWE AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RWE AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Allete Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Allete is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with RWE AG and Allete

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

The idea behind RWE AG PK and Allete Inc 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.