Correlation Between American Electric and Virtus LifeSci
Can any of the company-specific risk be diversified away by investing in both American Electric and Virtus LifeSci 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 American Electric and Virtus LifeSci into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Electric Power and Virtus LifeSci Biotech, you can compare the effects of market volatilities on American Electric and Virtus LifeSci 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 American Electric with a short position of Virtus LifeSci. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Virtus LifeSci.
Diversification Opportunities for American Electric and Virtus LifeSci
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Virtus is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Virtus LifeSci Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus LifeSci Biotech and American 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 American Electric Power are associated (or correlated) with Virtus LifeSci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus LifeSci Biotech has no effect on the direction of American Electric i.e., American Electric and Virtus LifeSci go up and down completely randomly.
Pair Corralation between American Electric and Virtus LifeSci
Considering the 90-day investment horizon American Electric Power is expected to generate 0.76 times more return on investment than Virtus LifeSci. However, American Electric Power is 1.32 times less risky than Virtus LifeSci. It trades about 0.16 of its potential returns per unit of risk. Virtus LifeSci Biotech is currently generating about -0.29 per unit of risk. If you would invest 8,248 in American Electric Power on January 26, 2024 and sell it today you would earn a total of 389.00 from holding American Electric Power or generate 4.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Electric Power vs. Virtus LifeSci Biotech
Performance |
| Timeline |
| American Electric Power |
| Virtus LifeSci Biotech |
American Electric and Virtus LifeSci Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Electric and Virtus LifeSci
The main advantage of trading using opposite American Electric and Virtus LifeSci positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric position performs unexpectedly, Virtus LifeSci 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 Virtus LifeSci will offset losses from the drop in Virtus LifeSci's long position.| American Electric vs. Dominion Energy | American Electric vs. Consolidated Edison | American Electric vs. Edison International |
| Virtus LifeSci vs. iShares Insurance ETF | Virtus LifeSci vs. SCOR PK | Virtus LifeSci vs. Morningstar Unconstrained Allocation | Virtus LifeSci vs. SPACE |
Check out your portfolio center.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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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