Correlation Between American Electric and Teleflex Incorporated

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

By analyzing existing cross correlation between American Electric Power and Teleflex Incorporated, you can compare the effects of market volatilities on American Electric and Teleflex Incorporated 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 American Electric with a short position of Teleflex Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Electric and Teleflex Incorporated.

Diversification Opportunities for American Electric and Teleflex Incorporated

-0.43

Correlation Coefficient

American Electric  Teleflex Incorporated

Very good diversification

The 3 months correlation between American and Teleflex is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Teleflex Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teleflex Incorporated and American Electric 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 American Electric Power are associated (or correlated) with Teleflex Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teleflex Incorporated has no effect on the direction of American Electric i.e., American Electric and Teleflex Incorporated go up and down completely randomly.

Pair Corralation between American Electric and Teleflex Incorporated

Considering the 90-day investment horizon American Electric Power is expected to generate 0.73 times more return on investment than Teleflex Incorporated. However, American Electric Power is 1.37 times less risky than Teleflex Incorporated. It trades about 0.01 of its potential returns per unit of risk. Teleflex Incorporated is currently generating about -0.01 per unit of risk. If you would invest  8,892  in American Electric Power on February 28, 2024 and sell it today you would earn a total of  5.00  from holding American Electric Power or generate 0.06% return on investment over 90 days.

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

American Electric Power  vs.  Teleflex Incorporated

American Electric Power

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Electric Power are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, American Electric may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Teleflex Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teleflex Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with American Electric and Teleflex Incorporated

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

The idea behind American Electric Power and Teleflex Incorporated 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..