Correlation Between Xcel Energy and American Electric

Can any of the company-specific risk be diversified away by investing in both Xcel 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 Xcel 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 Xcel Energy and American Electric Power, you can compare the effects of market volatilities on Xcel 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 Xcel Energy with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xcel Energy and American Electric.

Diversification Opportunities for Xcel Energy and American Electric

0.83

Correlation Coefficient

Xcel Energy  American Electric

Very poor diversification

The 3 months correlation between Xcel and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Xcel Energy 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 Xcel 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 Xcel Energy 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 Xcel Energy i.e., Xcel Energy and American Electric go up and down completely randomly.

Pair Corralation between Xcel Energy and American Electric

Considering the 90-day investment horizon Xcel Energy is expected to generate 3.16 times less return on investment than American Electric. But when comparing it to its historical volatility, Xcel Energy is 1.06 times less risky than American Electric. It trades about 0.06 of its potential returns per unit of risk. American Electric Power is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  9,121  in American Electric Power on December 28, 2024 and sell it today you would earn a total of  1,394  from holding American Electric Power or generate 15.28% return on investment over 90 days.

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

Xcel Energy  vs.  American Electric Power

Xcel Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Xcel Energy is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

American Electric Power

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, American Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xcel Energy and American Electric

The main advantage of trading using opposite Xcel Energy and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xcel 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 Xcel Energy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.