Correlation Between Avangrid and MGE Energy
Can any of the company-specific risk be diversified away by investing in both Avangrid and MGE Energy 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 Avangrid and MGE Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Avangrid and MGE Energy, you can compare the effects of market volatilities on Avangrid and MGE Energy 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 Avangrid with a short position of MGE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avangrid and MGE Energy.
Diversification Opportunities for Avangrid and MGE Energy
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Avangrid and MGE is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Avangrid and MGE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGE Energy and Avangrid 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 Avangrid are associated (or correlated) with MGE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGE Energy has no effect on the direction of Avangrid i.e., Avangrid and MGE Energy go up and down completely randomly.
Pair Corralation between Avangrid and MGE Energy
Considering the 90-day investment horizon Avangrid is expected to generate 12.4 times less return on investment than MGE Energy. But when comparing it to its historical volatility, Avangrid is 7.95 times less risky than MGE Energy. It trades about 0.21 of its potential returns per unit of risk. MGE Energy is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 9,009 in MGE Energy on August 31, 2024 and sell it today you would earn a total of 1,467 from holding MGE Energy or generate 16.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Avangrid vs. MGE Energy
Performance |
| Timeline |
| Avangrid |
| MGE Energy |
Avangrid and MGE Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Avangrid and MGE Energy
The main advantage of trading using opposite Avangrid and MGE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avangrid position performs unexpectedly, MGE Energy 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 MGE Energy will offset losses from the drop in MGE Energy's long position.The idea behind Avangrid and MGE Energy 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.| MGE Energy vs. CMS Energy | MGE Energy vs. Ameren Corp | MGE Energy vs. Pinnacle West Capital | MGE Energy vs. Evergy, |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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