Correlation Between Allete and AES Corp

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

By analyzing existing cross correlation between Allete Inc and AES Corp Unit, you can compare the effects of market volatilities on Allete and AES Corp 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 Allete with a short position of AES Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allete and AES Corp.

Diversification Opportunities for Allete and AES Corp

-0.47

Correlation Coefficient

Allete  AES Corp

Very good diversification

The 3 months correlation between Allete and AES is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Allete Inc and AES Corp Unit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AES Corp Unit and Allete 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 Allete Inc are associated (or correlated) with AES Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AES Corp Unit has no effect on the direction of Allete i.e., Allete and AES Corp go up and down completely randomly.

Pair Corralation between Allete and AES Corp

Considering the 90-day investment horizon Allete Inc is expected to generate 0.3 times more return on investment than AES Corp. However, Allete Inc is 3.37 times less risky than AES Corp. It trades about 0.03 of its potential returns per unit of risk. AES Corp Unit is currently generating about -0.05 per unit of risk. If you would invest  5,623  in Allete Inc on February 4, 2024 and sell it today you would earn a total of  804.00  from holding Allete Inc or generate 14.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	89.29%
Values	Daily Returns

Allete Inc  vs.  AES Corp Unit

Allete Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Allete may actually be approaching a critical reversion point that can send shares even higher in June 2024.

AES Corp Unit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AES Corp Unit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Allete and AES Corp

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

The idea behind Allete Inc and AES Corp Unit 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.