Correlation Between Wisconsin Electric and Union Electric

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

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

Diversification Opportunities for Wisconsin Electric and Union Electric

0.67

Correlation Coefficient

Wisconsin Electric  Union Electric

Poor diversification

The 3 months correlation between Wisconsin and Union is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Wisconsin Electric Power and Union Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Electric and Wisconsin 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 Wisconsin Electric Power are associated (or correlated) with Union Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Electric has no effect on the direction of Wisconsin Electric i.e., Wisconsin Electric and Union Electric go up and down completely randomly.

Pair Corralation between Wisconsin Electric and Union Electric

Assuming the 90 days horizon Wisconsin Electric Power is expected to generate 0.5 times more return on investment than Union Electric. However, Wisconsin Electric Power is 2.0 times less risky than Union Electric. It trades about -0.21 of its potential returns per unit of risk. Union Electric is currently generating about -0.32 per unit of risk. If you would invest  6,800  in Wisconsin Electric Power on October 11, 2024 and sell it today you would lose (474.00) from holding Wisconsin Electric Power or give up 6.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Wisconsin Electric Power  vs.  Union Electric

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.

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.

Pair Trading with Wisconsin Electric and Union Electric

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

The idea behind Wisconsin Electric Power and Union Electric 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.