Correlation Between CLEAN ENERGY and American Electric

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

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

Diversification Opportunities for CLEAN ENERGY and American Electric

0.39

Correlation Coefficient

CLEAN ENERGY  American Electric

Weak diversification

The 3 months correlation between CLEAN and American is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CLEAN ENERGY FUELS and American Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Electric Power and CLEAN ENERGY 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 CLEAN ENERGY FUELS are associated (or correlated) with American Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Electric Power has no effect on the direction of CLEAN ENERGY i.e., CLEAN ENERGY and American Electric go up and down completely randomly.

Pair Corralation between CLEAN ENERGY and American Electric

Assuming the 90 days trading horizon CLEAN ENERGY is expected to generate 3.32 times less return on investment than American Electric. In addition to that, CLEAN ENERGY is 2.92 times more volatile than American Electric Power. It trades about 0.01 of its total potential returns per unit of risk. American Electric Power is currently generating about 0.09 per unit of volatility. If you would invest  6,997  in American Electric Power on October 9, 2024 and sell it today you would earn a total of  2,053  from holding American Electric Power or generate 29.34% return on investment over 90 days.

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

CLEAN ENERGY FUELS  vs.  American Electric Power

CLEAN ENERGY FUELS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CLEAN ENERGY FUELS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CLEAN ENERGY may actually be approaching a critical reversion point that can send shares even higher in February 2025.

American Electric Power

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, American Electric is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CLEAN ENERGY and American Electric

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

The idea behind CLEAN ENERGY FUELS and American 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.