Correlation Between Essential Utilities and AES

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

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

Diversification Opportunities for Essential Utilities and AES

-0.33

Correlation Coefficient

Essential Utilities  AES

Very good diversification

The 3 months correlation between Essential and AES is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Essential Utilities and The AES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AES and Essential Utilities 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 Essential Utilities are associated (or correlated) with AES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AES has no effect on the direction of Essential Utilities i.e., Essential Utilities and AES go up and down completely randomly.

Pair Corralation between Essential Utilities and AES

Given the investment horizon of 90 days Essential Utilities is expected to generate 0.45 times more return on investment than AES. However, Essential Utilities is 2.25 times less risky than AES. It trades about -0.12 of its potential returns per unit of risk. The AES is currently generating about -0.28 per unit of risk. If you would invest  4,022  in Essential Utilities on August 19, 2024 and sell it today you would lose (162.00) from holding Essential Utilities or give up 4.03% of portfolio value over 90 days.

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

Essential Utilities  vs.  The AES

Essential Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essential Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Essential Utilities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

AES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Essential Utilities and AES

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

The idea behind Essential Utilities and The AES 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.