Correlation Between Dominion Energy and American Electric
Can any of the company-specific risk be diversified away by investing in both Dominion 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 Dominion 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 Dominion Energy and American Electric Power, you can compare the effects of market volatilities on Dominion 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 Dominion Energy with a short position of American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dominion Energy and American Electric.
Diversification Opportunities for Dominion Energy and American Electric
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dominion and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dominion 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 Dominion 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 Dominion 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 Dominion Energy i.e., Dominion Energy and American Electric go up and down completely randomly.
Pair Corralation between Dominion Energy and American Electric
Taking into account the 90-day investment horizon Dominion Energy is expected to generate 1.04 times more return on investment than American Electric. However, Dominion Energy is 1.04 times more volatile than American Electric Power. It trades about 0.1 of its potential returns per unit of risk. American Electric Power is currently generating about -0.03 per unit of risk. If you would invest 4,919 in Dominion Energy on January 28, 2024 and sell it today you would earn a total of 126.00 from holding Dominion Energy or generate 2.56% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Dominion Energy vs. American Electric Power
Performance |
Timeline |
Dominion Energy |
American Electric Power |
Dominion Energy and American Electric Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Dominion Energy and American Electric
The main advantage of trading using opposite Dominion Energy and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominion 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.Dominion Energy vs. Hertz Global Holdings | Dominion Energy vs. HP Inc | Dominion Energy vs. Merck Company |
American Electric vs. Hertz Global Holdings | American Electric vs. HP Inc | American Electric vs. Merck Company |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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