Correlation Between Apple and ENTERGY
Can any of the company-specific risk be diversified away by investing in both Apple and ENTERGY 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 Apple and ENTERGY into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and ENTERGY, you can compare the effects of market volatilities on Apple and ENTERGY 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 Apple with a short position of ENTERGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and ENTERGY.
Diversification Opportunities for Apple and ENTERGY
Poor diversification
The 3 months correlation between Apple and ENTERGY is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and ENTERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENTERGY and Apple 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 Apple Inc are associated (or correlated) with ENTERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENTERGY has no effect on the direction of Apple i.e., Apple and ENTERGY go up and down completely randomly.
Pair Corralation between Apple and ENTERGY
Assuming the 90 days trading horizon Apple Inc is expected to under-perform the ENTERGY. But the stock apears to be less risky and, when comparing its historical volatility, Apple Inc is 1.66 times less risky than ENTERGY. The stock trades about -0.28 of its potential returns per unit of risk. The ENTERGY is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 7,050 in ENTERGY on October 16, 2024 and sell it today you would earn a total of 450.00 from holding ENTERGY or generate 6.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. ENTERGY
Performance |
| Timeline |
| Apple Inc |
| ENTERGY |
Apple and ENTERGY Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and ENTERGY
The main advantage of trading using opposite Apple and ENTERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple position performs unexpectedly, ENTERGY 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 ENTERGY will offset losses from the drop in ENTERGY's long position.| Apple vs. Magnachip Semiconductor | Apple vs. Semiconductor Manufacturing International | Apple vs. MagnaChip Semiconductor Corp | Apple vs. Taiwan Semiconductor Manufacturing |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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