Correlation Between Union Electric and Wisconsin Electric

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

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

Diversification Opportunities for Union Electric and Wisconsin Electric

0.76

Correlation Coefficient

Union Electric  Wisconsin Electric

Poor diversification

The 3 months correlation between Union and Wisconsin is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Union Electric and Wisconsin Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wisconsin Electric Power and Union Electric 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 Union Electric are associated (or correlated) with Wisconsin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wisconsin Electric Power has no effect on the direction of Union Electric i.e., Union Electric and Wisconsin Electric go up and down completely randomly.

Pair Corralation between Union Electric and Wisconsin Electric

Assuming the 90 days horizon Union Electric is expected to generate 0.08 times more return on investment than Wisconsin Electric. However, Union Electric is 12.49 times less risky than Wisconsin Electric. It trades about 0.25 of its potential returns per unit of risk. Wisconsin Electric Power is currently generating about -0.23 per unit of risk. If you would invest  8,665  in Union Electric on October 25, 2024 and sell it today you would earn a total of  35.00  from holding Union Electric or generate 0.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.89%
Values	Daily Returns

Union Electric  vs.  Wisconsin Electric Power

Union Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Electric has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Wisconsin Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wisconsin Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Wisconsin Electric is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Union Electric and Wisconsin Electric

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

The idea behind Union Electric and Wisconsin Electric Power 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.