Correlation Between Duke Energy and American Electric

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

Diversification Opportunities for Duke Energy and American Electric

0.57

Correlation Coefficient

Duke Energy  American Electric

Very weak diversification

The 3 months correlation between Duke and American is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Duke 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 Duke 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 Duke 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 Duke Energy i.e., Duke Energy and American Electric go up and down completely randomly.

Pair Corralation between Duke Energy and American Electric

Considering the 90-day investment horizon Duke Energy is expected to generate 1.19 times less return on investment than American Electric. But when comparing it to its historical volatility, Duke Energy is 1.21 times less risky than American Electric. It trades about 0.18 of its potential returns per unit of risk. American Electric Power is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8,396  in American Electric Power on February 4, 2024 and sell it today you would earn a total of  429.00  from holding American Electric Power or generate 5.11% return on investment over 90 days.

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

Duke Energy  vs.  American Electric Power

Duke Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Duke Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Duke Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

American Electric Power

Risk-Adjusted Performance

14 of 100

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 weak 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 Duke Energy and American Electric

The main advantage of trading using opposite Duke Energy and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Duke 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 Duke 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.