Correlation Between RWE AG and Otter Tail

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

Diversification Opportunities for RWE AG and Otter Tail

0.31

Correlation Coefficient

RWE AG  Otter Tail

Weak diversification

The 3 months correlation between RWE and Otter is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and Otter Tail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otter Tail 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 Otter Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otter Tail has no effect on the direction of RWE AG i.e., RWE AG and Otter Tail go up and down completely randomly.

Pair Corralation between RWE AG and Otter Tail

Assuming the 90 days horizon RWE AG PK is expected to generate 1.0 times more return on investment than Otter Tail. However, RWE AG is 1.0 times more volatile than Otter Tail. It trades about 0.19 of its potential returns per unit of risk. Otter Tail is currently generating about 0.09 per unit of risk. If you would invest  2,958  in RWE AG PK on December 28, 2024 and sell it today you would earn a total of  612.00  from holding RWE AG PK or generate 20.69% 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.  Otter Tail

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 15 (%) 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.

Otter Tail

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Otter Tail are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Otter Tail may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with RWE AG and Otter Tail

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

The idea behind RWE AG PK and Otter Tail 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..