Correlation Between Consolidated Edison and American Electric
Can any of the company-specific risk be diversified away by investing in both Consolidated Edison 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 Consolidated Edison and American Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consolidated Edison and American Electric Power, you can compare the effects of market volatilities on Consolidated Edison 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 Consolidated Edison with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Edison and American Electric.
Diversification Opportunities for Consolidated Edison and American Electric
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Consolidated and American is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison 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 Consolidated Edison 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 Consolidated Edison 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 Consolidated Edison i.e., Consolidated Edison and American Electric go up and down completely randomly.
Pair Corralation between Consolidated Edison and American Electric
Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.92 times less return on investment than American Electric. But when comparing it to its historical volatility, Consolidated Edison is 1.22 times less risky than American Electric. It trades about 0.07 of its potential returns per unit of risk. American Electric Power is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,324 in American Electric Power on January 25, 2024 and sell it today you would earn a total of 1,313 from holding American Electric Power or generate 17.93% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Consolidated Edison vs. American Electric Power
Performance |
Timeline |
Consolidated Edison |
American Electric Power |
Consolidated Edison and American Electric Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Consolidated Edison and American Electric
The main advantage of trading using opposite Consolidated Edison and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Edison 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.Consolidated Edison vs. Duke Energy | Consolidated Edison vs. Dominion Energy | Consolidated Edison vs. American Electric Power | Consolidated Edison vs. Nextera Energy |
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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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